May 23, 2013
Not the 2001 odyssey?
“This,” Deputy Economy Minister Axel Kicillof said at a press conference on Friday, “is not 2001.” Maybe not. But is this not Argentina? Yes, it is. Kicillof, a Keynesian academic versed in Marx (or is it the other way around?), is now arguably the most influential economist since Domingo Cavallo. Cavallo was economy minister during Argentina’s infamous 2001 political and financial odyssey that climaxed in the largest sovereign debt default in world history.
Kicillof on Friday was addressing speculation that in the works is a plan to decree the pesofication of the economy. He denied all. The opposition media, Kicillof said, was trying to use the recent currency exchange controls by the AFIP tax bureau to spread unfounded panic. Stories about the withdrawal of dollar deposits and restrictions to purchase dollars to travel abroad have been splashed on the frontpages of newspapers all week.
Kicillof spoke a day after hundreds of people in the neighbourhoods of Palermo, Belgrano, Barrio Norte and others banged pots and pans on Thursday night to protest “government corruption.” Pots and pans were also banged in anger in 2001, eventually forcing both Cavallo and then President Fernando de la Rúa, the Radical leader of the Alliance coalition, out of office. Pots were banged again on Friday night in those middle- and upper-class Buenos Aires City neighbourhoods.
Yet Kicillof (during a press conference that was technically about the energy company YPF) was confident enough to tell you loud and clear, even raising a finger up in the air to reassert his statement, that this is not 2001.
You doubt that? Good for you. But right here and now Kicillof — like Cavallo a decade ago — must be given the benefit of the doubt. There is no telling how much like 2001 Argentina will be when a new year turns in December. But the economy has not crashed just yet.
The draconian currency exchange controls, presumably engineered by Kicillof and approved by President Cristina Fernández de Kirchner, have irked some. Also in a foul mood are the farmers in Buenos Aires province after the provincial Congress on Thursday approved a reform to increase the value of farmland and hike taxes. Truth be told, Buenos Aires Governor Daniel Scioli, a moderate Kirchnerite, increased the value of farmland by decree and then the provincial Lower and Upper Houses passed the tax increase.
The provincial Lower House had failed twice in as many weeks to garner quorum. But Scioli’s decree on Thursday was part of a political agreement with at least three opposition parties that allowed quorum to be reached (opposition mayors are also interested in boosting revenue in cash-strapped Buenos Aires province to help pay salaries). Farmers in Buenos Aires province have called a nine-day strike, which started yesterday, over the hike.
Believe Kicillof for a minute. This is not 2001. But is it 2008? In 2008, a bill sponsored by Fernández de Kirchner to increase grain export duties was met with a nationwide nine-day strike by farmers. That lockout in 2008 was the start of a fierce standoff between the farmers and the CFK administration. The conflict came to a head when Julio Cobos, then the vice-president, cast the decisive tie-breaking vote in the Senate against the President’s bill.
Victory for the farmers! Yes, in 2008. But what kind of victory? Come 2011 Fernández de Kirchner was re-elected with 54 percent of the votes and Cobos, a Radical, is now semi-retired in his native Mendoza province.
It’s too easy to forget the President’s landslide victory happened only last October. Fernández de Kirchner resumed office in December. Even if a crisis is looming, the President is in a better political position than she ever was in 2008. The election win of last year means that the ruling Victory Front controls both the Lower House and the Senate. The muscle of the Kirchnerite political machine has also been enhanced. The President in April headed a massive demonstration at a football stadium in Buenos Aires soon after announcing her decision to expropriate 51 percent of the energy company YPF.
Yet it looks like all this power — and Kicillof’s prowess as an economist — will be tested by the irritation caused (in some at least) by the decision to limit the buying of dollars in a bid to meet debt obligations (including the cancellation of the BODEN 2012 debt bond in August worth 2.3 billion dollars).
Did somebody say BODEN 2012? Wait. So this is not 2001 — the year of the crash. This is not 2008 — the year of the farm war. It’s not even 2011 — the year of CFK’s landslide. This is, judging by the date on that BODEN bond, 2012 — the year of what? Good question.
It can still end up being the year of Kicillof — for all the pot-banging and farm protests — if the CFK administration manages to turn a financial corner and is still in control of the nation come December. A look at the election results of 2011 will show you that Fernández de Kirchner did not perform brilliantly in Buenos Aires City. Fernández de Kirchner will have to start worrying if and when the irritation spills over from Buenos Aires City to the rest of the nation — something that did actually happen in 2008 practically out of nowhere.
Irritation is difficult to gauge. But, presumably, the CFK administration can ride this storm on the back of the 47 billion dollars in foreign currency reserves it holds in the Central Bank.
Especially testing in the coming weeks will be the extent of dollar deposit withdrawals from banks on fears that Kicillof and his team have more drastic decisions cooking. Dollar deposits in banks have dropped about 10 percent in the last three weeks. A total of 1.3 billion dollars have been pulled out of banks since May 11, according to sources quoted by Reuters. Yet experts say that even this situation should be manageable and that deposits are not at risk, unless CFK is planning to commit political suicide.
Maybe the dollar story will not turn out to be a long-term problem. But is it not already a nuisance?
The CFK administration risks tripping over its own regulations. Senator Aníbal Fernández tied himself up in a rhetorical knot when he tried to explain, during an interview with a radio station on Thursday, why he has about 24,000 dollars in savings. It’s my money, an exasperated Fernández spat at the interviewer, I can can do with it as I please. (The President apparently was not amused and during an appearance in public that same day asked him in jest if he “had taken his medicine.” The senator apologized the next day.)
Yesterday, Fernández also confirmed reports that the government is urging exchange houses to trade the “blue” market dollar at 5.10 pesos, starting tomorrow. Reports yesterday said that Domestic Trade Secretary Guillermo Moreno had met with exchange house executives on Friday in a bid to stop the blue dollar (worth roughly 5.95 pesos on Friday) from climbing further. If there ever was a plan to force the pesofication of the economy, it appears it was halted — at least for a while — on Friday.
Many questions will be answered if Moreno’s “blue” dollar tomorrow, say, is sold to the irate pot-bangers of Palermo at 5.10 pesos (the “official” dollar now trades at about 4.50 pesos). But the reports are contradictory.
The question is how Kicillof will react to Moreno’s rustic solution to the blue dollar question. Kicillof may well currently have the influence of a Cavallo (or a Roberto Lavagna). But will that influence wane if the currency exchange controls are eventually eased to appease the pot-bangers?
Even with the irritating noise of the clanging saucepans in the background and the slow but sure withdrawal of dollar deposits, the national government is confident it can meet all its financial targets this year (all this while another global economic crash could be looming).
Fernández de Kirchner has other issues that she would like to concentrate on come December if all debts are satisfactorily cancelled.
The President said on Thursday that all media companies will have to meet the divestment clause of the Media Law approved in 2009. Fernández de Kirchner’s comments came after the Supreme Court ruled that an injunction, filed by the media group Clarín freezing a key article of the bill, expires on December 7. (Injunctions are also now being filed over the dollar restrictions.)
Grupo Clarín claims that the Media Law is unconstitutional because it forces companies to shed licences owned before its approval. The court battle will continue and the confrontation could get worse if Fernández de Kirchner delivers on her decision to force all companies, not just Clarín, to comply with the law come December.
The new December deadline is a reminder that the CFK administration’s war with the opposition media is still raging. Thursday’s approval of Scioli’s tax reform bill did not come without media controversy attached.
The newspaper Clarín carried a frontpage photograph of Kirchnerite lawmaker José Ottavis chatting on his cellphone with a fellow lawmaker. The subject of the chat were rumours spread by an opposition lawmaker about 150,000 pesos in bribes paid for the tax reform to be approved. Ottavis, a leader of the Kirchnerite youth group La Cámpora, claims the newspaper acted in bad faith and that the conversation was about not spreading false rumours, and not about actual bribes. But prosecutors in La Plata have opened an investigation.