The financial view: Argentina doesn’t need more false promises
Sunday’s win by Alberto Fernández has sparked talk of a return to the country’s storied left-wing populism. Yet it’s hard to move left — or right, or anywhere — when you’re boxed in by the legacy of chronic economic mismanagement.
Under President Mauricio Macri, Argentina’s economy has shrunk by 3.4 percent. The inflation rate is higher than 50 percent, unemployment exceeds 10 percent, and more than a third of the population lives in poverty. Despite a record US$56-billion bailout by the International Monetary Fund, Argentina is likely to default on its debt, which now stands at more than 90 percent of gross domestic product.
“Hopefully those who were our opponents during these four years are conscious of what they’re leaving behind,” Fernández said after his victory.
Left unsaid was that Argentina’s predicament stems largely from the damage wrought by Macri’s predecessor, Cristina Fernández de Kirchner, who will now become Fernández’s vice-president. After a dozen years of misrule by her and her husband, Néstor Kirchner, Argentina had stagnant growth, soaring prices, depleted reserves, no access to international capital markets, a thriving currency black market, tariffs on exports and imports, dodgy statistics and widespread scandals. The new vice-president is facing corruption charges in 11 separate cases.
The less-than-expected margin of Fernández’s victory points to voter fatigue with the country’s turbulent politics and scepticism about Peronist promises. Despite Macri’s botched attempt to rescue the economy — a task made harder by the Federal Reserve, which raised interest rates and helped precipitate a plunge in the peso — he managed to win 40 percent of the vote. The opposition also retained control of Argentina’s biggest cities and enough seats in the lower house Chamber of Deputies to stymie legislation.
That’s all the more reason for Fernández to find common ground in devising solutions to the country’s deep-seated economic problems. His first priority should be convincing the IMF and private bondholders to support a renegotiation of Argentina’s burgeoning debts. Investors may be willing to trade higher potential returns for greater certainty that they’ll be repaid and not face more defaults down the road.
A seasoned behind-the-scenes operator, Fernández has kept his own policy preferences opaque. The same can’t be said of his more interventionist vice-president and her acolytes, whose political power helped to propel him to victory. He’ll need to blunt their calls for a return to protectionism and budget-busting consumer subsidies, as well as export tariffs on the agribusiness sector, which has benefited from the US-China trade war. As tempting as it may be for Fernández to make common cause with fellow Latin American leftists, he can’t afford to alienate rightleaning Brazil, Argentina’s biggest trading partner, or walk away from their shared Mercosur trade pact with the European Union.
The last thing Argentina’s wary voters need is more false promises. For all the talk of the continent’s “pink tide” coming in or going out, the tide that most Latin Americans want is the one that will truly lift their boats.