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OPINION AND ANALYSIS | 31-08-2019 01:30

The campaign or the nation?

Argentina’s ninth debt default in its history is but one more stain in an already tarnished reputation.

A slow-motion train wreck. It’s difficult to find a better metaphor for the events of last few weeks in Argentina than that. The tremendous lead achieved by Alberto Fernández over incumbent Mauricio Macri in the PASO primaries – which defined nothing and everything at the same time – sparked a financial crisis of the first magnitude. Both Macri, who bears the responsibility as sitting president, and Fernández, who many believe is already president-elect, were both caught off-guard. Turbulence.

Is it better to fix or to break? Is the campaign more important than the future of the nation? The market – supposedly the collective expectations of investors based on all available information – has lost billions, while even the International Monetary Fund (IMF) seems to have let go of Macri’s hand.

Cristina Fernández de Kirchner’s running-mate – who hasn’t even announced an economic plan, or Cabinet – continues to flirt with the precipice, asking the IMF not to disburse the next US$5.4 billion tranche of its largest-ever emergency loan, while brand-new Finance Minister Hernán Lacunza pushes the country into selective default in order to guarantee Central Bank reserves so that Macri may make it to the end of his term.

Argentina, as a nation, is the absolute master at self-flagellation. As has been mentioned in these lines before, the PASO primaries were an unnecessary experiment, a nationwide poll bankrolled by the State. At the same time, the ruling Cambiemos (Let’s Change) coalition, reorganised under the Juntos por el Cambio (Together for Change) banner, was responsible for setting massively optimistic expectations for the election among the populace and the market. This caused the market to overshoot its negative reaction to the results, which Macri’s electoral team — Cabinet Chief Marcos Peña and Ecuadorean adviser Jaime Durán Barba — were unable to explain. The results of the PASO wrought havoc on the financial world, which in Argentina automatically translates into real life. Not only was outsized confidence a problem, the economic plan hatched by then-finance minister Nicolás Dujovne and sitting Central Bank Governor Guido Sandleris, backed by the IMF, included artificially stabilising the currency in order to win the election. They played the same game in 2017, only to unwind the whole thing in the fateful December 28 press conference where Federico Sturzenegger was publicly humiliated, sparking an initial run on the peso which would accelerate disastrously throughout 2018. Fortune playing her hand.

If Macri had achieved technical parity in the primaries and a hypothetical run-off victory in November, what would’ve been his plan for exchange rate stability beyond burning through the IMF bailout money? La lluvia de dólares? Interestingly, the Monday following the election, when the peso went haywire, Sandleris’ Central Bank sat on the sidelines, even as the non-intervention zone was pierced. Some, including former central banker Martin Redrado (a possible member of Alberto’s Cabinet) suspect foul play. The nation or the election?

The effectiveness of the emergency measures being announced by Production and Labour Minister Dante Sica first, and Lacunza now, appears extremely limited. In the midst of financial chaos, either confidence in the state’s capacity to execute — as expressed via Central Bank reserves or an unlimited printing press that doesn’t create inflation, as Ben Bernanke and Mario Draghi have taught us — or draconian measures will win the day. Mauricio Macri doesn’t have the former and is unwilling to do the latter. Added to lack of courage, currency controls are in conflict with Macri’s epistemology, even if Lacunza and Sandleris have timidly begun to roll them out. It is difficult to imagine Argentina’s creditors regaining confidence in the Macri administration once they’ve announced plans to “voluntarily renegotiate” payment terms on sovereign bonds. The IMF first postponed a visit to the country, then left without lifting the shadow of doubt.

What is Alberto’s responsibility after having shown to the electorate that he most probably will take the October election in a first-round vote, with his candidate for the Buenos Aires Province, Axel Kicillof, winning by a landslide against incumbent María Eugenia Vidal? The election, of course, hasn’t happened. And no one knows what role former president Cristina Fernández de Kirchner, her son Máximo, and the more radicalised La Cámpora youth organisation will play in his government. Hawks among his ranks ask him to generate chaos, like the Joker in the Batman series. Entropy is his best weapon to use in exposing Macri’s weakness and thus securing him victory in the election. Doves beg him to take a moderate stance, noting the lives of 45 million Argentines are on the line, and that the bleeding of reserves and spiralling of inflation will only give him a tougher first 100 days in office. Macri, after blaming him for the financial disaster, called him and begged mercy and selflessness. Alberto (who is Alberto?) has gone back and forth, antagonising with the IMF and telling the Wall Street Journal the country is in “a virtual and hidden default.”

Alberto Fernández’s massive popular support is derived from none other than Cristina Fernández de Kirchner’s following, and the league of Peronist governors who flocked to his side the second they saw no alternative. As a politician, he does not represent a section of society. Even Mauricio, as last weekend’s massive marches demonstrated, has a strong popular support base. While the president has lost the capacity to put together a socio-political coalition among different popular support groups with shared interests, Alberto still needs to find himself. And a plan – or at least the illusion of one. It remains to be seen whether he has one and/or whether he wants to show it. Macri’s latest move, to ask Congress to decide the terms of a potential sovereign bond restructuring, throws the ball into his court.

Argentina’s ninth debt default in its history is but one more stain on an already tarnished reputation. While the political institutions have once again proven their capacity to withstand a financial crisis – as they did in 2001 – it is clear the macroeconomic fragility of the country is its defining feature. At the end of the day, the failure of the nation’s political class to formulate an economic plan, coupled with a social pact that puts long-term goals ahead of short-term and sector-specific gain, will continue well into the next presidency. Whoever is in the Casa Rosada.

Agustino Fontevecchia

Agustino Fontevecchia

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