Fernández and his Cabinet had only one tangible mission upon taking power: renegotiating Argentina’s massive debt pile in terms that would give the economy time to “get back on its feet.”
Across the globe, world leaders are comparing the onslaught of the deadly coronavirus with a war. Alberto Fernández, Donald Trump, and Emmanuel Macron have already labelled Covid-19 an “invisible enemy,” while Chancellor Angela Merkel called it “the biggest threat to Germany since World War II.” Several of the measures being taken resemble wartime efforts – from closing down international borders and instituting nation-wide quarantines, calling on security forces and even armies to patrol the streets, granting the Executive emergency powers, and so on. The US leader even called himself a “wartime president” while invoking the Defense Production Act, a 1950s law aimed at increasing industrial production passed during the Korean War.
War is a horrible historical occurrence intimately tied to human existence, as are pandemics. As mentioned in this column last week, the 1918 “Spanish flu” is estimated to have infected half a billion people, eliminating some 50 million of them in two years, making it more deadly than the bloody trench and chemical warfare waged in World War I. Wars are also opportunities. Roman generals knew all too well that their legacy was tied to the number of significant victories that brought honour to Rome. The greatness of the Empire was a perfect excuse to cover up economic weakness through extended military campaigns that brought bounty and exotic prisoners back to the capital. More recently, former president Néstor Kirchner told renewed filmmaker Oliver Stone that George W. Bush once suggested to him a war could be a good method of invigorating an economy.
For President Fernández, the coronavirus outbreak could end up being an incredible opportunity. Argentina is in a dire economic situation after having suffered tremendously during the second presidency of vice-president Cristina Fernández de Kirchner and then Mauricio Macri’s one-term administration. Both of them helped create the conditions for deep stagflation, exacerbating the problems in their own way, to the point where Fernández and his Cabinet had only one tangible mission upon taking power: renegotiating Argentina’s massive debt pile in terms that would give the economy time to “get back on its feet.” Only after a successful debt restructuring would the Fernández administration truly have the conditions to target deep seated distortions which have led to a poverty rate north of 40 percent, according to the Social Debt Observatory of the Argentine Catholic University (UCA). Thus, he repatriated Martín Guzmán from Columbia University, where the economist worked with Nobel laureate Joseph Stiglitz, as a specialist on sovereign debt crises.
Not only from an economic standpoint, but also from a political one, Fernández faced a second, interrelated structural weakness. The former Cabinet chief was handed the unique opportunity to lead a unified Peronist opposition to Macri’s Juntos por el Cambio (“Together for Change”) coalition by none other than Mrs. Fernández de Kirchner, whom he had aggressively criticised in his years as a private citizen. Then-candidate Alberto was tasked with bringing together Cristina’s hardcore followers — masses of lower class citizens crippled by Macri’s economic programme, together with left-wing political leaders close to the La Cámpora youth movement– with centrist Peronist governors who had suffered Mrs. Fernández de Kirchner’s pseudo-authoritarian methods, and Frente Renovador (“Renewal Front”) leader Sergio Massa, who in 2015 handed Macri a surprise victory over CFK’s candidate, Daniel Scioli. Thus, President Alberto suffered from the same ailment as Cristina in her early days as commander-in-chief: the public perception that there existed a “double command” where someone else was actually in charge. (For Mrs. Fernández de Kirchner, it was Néstor.) For Alberto, Cristina.
In recent conversations with Argentine journalists who travelled to Washington, major US officials at places like the US State Department and the Treasury indicated the Trump administration’s willingness to help Argentine overcome its debt disaster, but they said they remained sceptical of Alberto’s actual decision-making power. Cristina’s constant evocation of the concept of lawfare, accusing the Judiciary of politically persecuting her and her family — on which her former officials have piggy-backed considering themselves “political prisoners” a la Nelson Mandela despite being accused, and many times convicted, of petty corruption— tested the president’s independence, begging the question whether his promised judicial reform was noble or aimed at guaranteeing immunity for CFK’s daughter Florencia, who is on her way back from Cuba. Cristina’s shadow appeared to be growing with appointments in key places within the Fernández government.
The velocity with which the coronavirus outbreak went from a Chinese issue to a simple flu to a global pandemic was staggering. Yet, it gave Argentina several weeks notice, as President Fernández admitted in his speech to the nation announcing a “total quarantine” of the population. It took him and his Cabinet 17 days since the first confirmed case to put in place stringent measures to limit mobility and enforce social isolation. He appears to have been ultimately convinced of quarantining the country, despite the risks to the already battered economy, after seeing an exodus toward beach destinations in the Argentine coast (a sign that large parts of the population weren’t taking the pandemic seriously enough) and the chaos that erupted in several major train stations throughout Buenos Aires City ahead of the lockdown, indicating the security forces weren’t in real conditions to control the masses.
The president made his decision with the full support of Argentina’s governors across all political banners and congressional leaders. With Cristina completely out of sight, Fernández gave several messages to the population where he appeared centred and reasonable, inspiring trust. He positioned himself as the political leader of all Argentines, La Nación’s Claudio Jaqueline suggested, with unanimous support granting him popular authority. Most deliberately, he was flanked by two of the major opposition figures — City Mayor Horacion Rodríguez Larreta and Jujuy Governor Gerardo Morales — as well as Buenos Aires Province Governor Axel Kicillof and Santa Fe’s Omar Perotti. Even Mauricio Macri phoned him up to express his support.
Having consolidated his power, Fernández must prove an able manager of the State amid a global crisis that, fortunately, hasn’t hit Argentina that hard yet. It remains unknown how much damage the coronavirus outbreak will cause in terms of infections and deaths, even though the images coming out of Italy and Spain are frightful. The economic destruction, which could prove even more dangerous, will be profound. Global markets have already lost trillions in value, while one of China’s major productive centres has been under lockdown. Most of the European Union is in quarantine and Covid-19 is aggressively hitting the United States. Global demand will suffer a tremendous hit, while supply chains have been deeply disrupted.
More than 11,000 deaths had been recorded at press time with worst-case estimates putting those figures in the tens of millions. Already, cramped public health systems have crashed in the face of the virus, meaning not only are people dying of Covid-19 but also of other ailments given lack of treatment. In Argentina, where only three deaths have been documented, the economic impact could be dire, with journalist Daniel Sticco indicating a one percent decrease in GDP could result from the outbreak, with an initial US$36-billion loss partially compensated by a quick rebound.
Indeed, Guzmán and Production Minister Matías Kulfas announced an ambitious stimulus package estimated at two percent of GDP, spending that would have been unacceptable under “normal consequences” given Argentina’s deficit and pending negotiations with private creditors over debt relief. The measures passed without criticism of the press or major economic analysts, while Guzmán succeeded in his biggest debt-swap since the administration took office this week, postponing coming payments and giving him fresh funds covering a substantial portion of the stimulus package. Major investment funds with skin in the restructuring game — Templeton and Pimco — took an estimated 30 to 40 percent haircut. And an initial offer to foreign creditors is expected as early as this weekend.
The risks are many, but Argentina was already on the verge of collapse. While Vaca Muerta has been rendered useless given the fall in oil prices, and the decline in global commodity prices will impact Argentina’s agro-exporting sector, successful leadership by Alberto Fernández and an interesting negotiation between Guzmán and private creditors could be in the cards. As could a total collapse of everything due to the coronavirus. As always, Argentina continues to live on the edge, only this time the rest of the world is with us.