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OPINION AND ANALYSIS | 29-06-2019 08:59

Hushed dollar feeds Macri’s optimistic bias

There were 204,000 less jobs in April than a year earlier. Salaries lost 10 percent of their purchasing power, also compared with a year ago. Income inequality widened and poverty climbed to 35 percent.

If it is true that you can torture data until it confesses to anything, this is exactly what’s going to happen in the campaign that is just starting.

The INDEC statistics bureau published a battery of economic numbers this week, which the ruling coalition and the opposition will use as fodder for diametrically opposed electoral cases. In the government’s favour, these numbers can be tortured now because they are real: even the leading opposition candidate Alberto Fernández acknowledged this week, “(The INDEC) is working better under (President Mauricio) Macri,” said Fernández. “We should never again deny inflation or hide poverty.”

This week INDEC reported that the economy shrank 1.3 percent in March, year on year. Supermarket sales went down 12.6 percent and shopping mall sales 22.9 percent in April. The current account of the Balance of Payments hit a deficit of USD 3.85 billion in the first quarter. There were 204,000 less jobs in April than a year earlier. Salaries lost 10 percent of their purchasing power, also compared with a year ago. Income inequality widened and poverty climbed to 35 percent

The economy is and will continue to be a burden President Mauricio Macri has to carry in his fight to reelection. In November 2016, the President reported the INDEC’s first poverty numbers after a data blackout lasting for around three years and said that he wanted his administration to be judged for how much he managed to reduce it. He said his starting point was the 32.2 percent poverty rate the INDEC reported for the first half of 2016. The way the economy is doing, his government will have to swallow a higher poverty figure, likely around 34 percent come September, when the INDEC reports the number for the first half of 2019.

But even with the bad news, the government is giving a data fight. With the same information available, ruling party talking heads are trying to show that the worst is over, but without using those exact words, which were uttered by the President in his March 2018 State of the Nation address, only to see the start of a massive run on the peso a month later. Therefore in April, for instance, the economy grew 0.8 percent vis-à-vis March, exports in May reached a four-year high of USD 6 billion and there was a trade surplus of USD 1.37 billion (also attained, needed to noted, by a 28 percent slump in imports due to the recession). And while jobs and wages lost ground in April in the annual comparison, they stabilized compared to March.

These are some of the numbers IMF Managing Director Christine Lagarde cited after meeting with Macri at the G20 Summit in Japan yesterday. “The (standby) program is starting to yield results.” In his speech, Macri echoed her optimism, “After a difficult 2018, we have good news in Argentina now.”

All this fine-print discussion over numbers is only possible because the foreign exchange front has been stable for two months now. Although not officially, Argentina has a dual legal tender: the peso for everyday transactions, the US dollar for savings. Macri will have no chances of reelection if the price of the dollar versus the peso becomes jittery again, as it was between April 2018 and – on and off – April 2019. Currency governability equals political governability. And every time the political establishment manages to hush the currency, an optimistic bias takes hold.

But the government also risks overreacting its foreign exchange caution. The currency market has been calm since the Central Bank announced, contrary to the initial terms of the agreement with the IMF – and to IMF rules altogether – that it would use the US$ 57 billion of the standby agreement discretionally in the event of a new run on the currency. The announcement has hushed the market, but paradoxically also worried bondholders, who thought that IMF money was earmarked exclusively to pay the country’s debt. First things first: the government’s top priority now is to sail placid waters through the election – next year is still too far away.

In the meantime, the political trend as expressed by the opinion polls that circulate both in public and in private are telling the administration that their choice is right. Macri is still, in average, lagging slightly behind the opposition ticket of Fernández and Cristina Fernández de Kirchner, but he is gradually coming closer. The economy continues to be the single most important political variable in this election, more for the damage it can inflict on the President’s reelection chances rather than the benefit it could bring. At best, the administration hopes to be able to tell Argentines, come October, that the INDEC numbers are showing the country is moving “on the right track,” which would justify a vote of continuation rather than change. The August 11 primary will be the ultimate poll, the one that will define whether this calm is here to stay or simply precedes the next storm.

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Marcelo J. Garcia

Marcelo J. Garcia

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