May 25, 2013
All the cash that’s fit to print
To some, Argentina’s regulations are now dictated by a “neo-Marxist,” but to the President it’s still capitalism
Argentina, at least that’s one way of looking at it, is like a vast land of political and economical experimentation. In the nineties, Domingo Cavallo, the economy minister, pegged the peso to the dollar and embraced neoliberal policies. There’s an experiment for you. How did it end? Not very well judging by the implosion of 2001. Now there is more economic experimenting being done by Axel Kicillof, the deputy economy minister the Wall Street Journal likes to call “neo-Marxist.” To oversimplify things, Kicillof is doing exactly the opposite to what Cavallo did.
Kicillof has slapped strict currency exchange controls and the name of his economic game is heavy regulation. Already, Kicillof regulates the oil industry. Reports on Friday said that Kicillof now also plans to regulate the electricity sector. Kicillof, an economist trained at the state-run University of Buenos Aires (UBA), has the backing of President Cristina Fernández de Kirchner. Argentina, the President recently said at a speech delivered at the Buenos Aires Stock Exchange, is a capitalist country. But Fernández de Kirchner has also openly embraced regulation. No regulation, she said, is a form of regulation.
Fernández de Kirchner, speaking in Government House on Friday, showed she is clearly convinced that economic orthodoxy is not working in places like Spain and Greece. The President on Friday scoffed at an international financial magazine for giving Argentina’s Central Bank, and its governor Mercedes Marcó del Pont, a bad grade for failing to be independent. Central banks, the President told her audience with a laugh, according to the magazine must keep politics out. Fernández de Kirchner openly said on Friday that she thinks that elected officials have every right to meddle with a central bank. That, the President said, is why politicians win elections. There you have it. Argentina has unpegged the peso from the dollar and is going down the road of regulation on orders of its re-elected president.
Imagine all the ideological debates you can have about these issues over coffee. On the other side of the ideological argument is Buenos Aires Mayor Mauricio Macri, the leader of the centre-right party PRO. Macri is complaining about rampant propaganda promoted by the national government to impose its ideas. The mayor has set up a toll -free telephone number where citizens can report on the activism of La Cámpora, the Kirchnerite youth group that has been accused of canvassing in secondary schools. Part of the argument is about a novel-length comic book called El Eternauta. After Néstor Kirchner, the President’s husband and predecessor, died suddenly of a heart attack in 2010 La Cámpora depicted the late leader as a hero from that comic book story. Clad in an astronaut-like suit Kirchner was christened by his followers the Nestornauta. Macri has accused La Cámpora of now using El Eternauta in schools to plug Kirchnerism to students.
Are you finding it hard to follow all this? Well, that’s the way things are in the land of political experimentation. It’s a land where institutions in the past have been so weak that it’s relatively easy to clinch power. The late Kirchner, for instance, clinched power in 2003 after coming second in the first round of the presidential elections with 22 percent of the vote behind Carlos Menem (the president who named Cavallo in the nineties). Menem dropped out before a runoff when many polls showed that he was certain to suffer a massive defeat against Kirchner (or any other candidate who managed to qualify for the runoff). Menem’s decision to drop out of the race in 2003 effectively signalled the end of the political and economic experiment that had Cavallo as its main mastermind in the nineties.
Now we are in the middle of a different era. The Kirchnerite era is not over. The Kicillof experiment has not imploded just yet. Meaning that, like Cavallo before him, Kicillof must be given the benefit of the doubt.
Kicillof, said Cavallo recently, is a man with ideas. Those ideas, Cavallo added, are wrong. But at least they are ideas, he said.
The age of Kicillof is very much the age of regulation. There’s evidence of this all over the place. Earlier this year, the President submitted a bill to Congress to expropriate the giant natural gas and oil company YPF. Congress, which is controlled by the ruling Victory Front after CFK’s landslide re-election win last year, approved the bill to nationalize YPF.
There was more expropriating being done in Congress on Wednesday. The Lower House approved 145-78 the expropriation of the money-printing company CVS, which was formerly known as Ciccone Calcográfica. Amado Boudou, the vice-president, is still facing a court investigation over accusations of influence-peddling to rescue bankrupt Ciccone to allegedly hand it over to a frontman.
On Wednesday, the money-printer was effectively nationalized and the accusations against Boudou could well be now rendered abstract. Ciccone is no more. It has been gobbled up by the state with a swipe of the Kirchnerite majority in Congress.
To the critics, the Ciccone case shows everything that is wrong with Kirchnerism. Boudou allegedly tried to free the private company of tax debts so that it could be rescued to then land a contract to print money for the Central Bank worth 50 million dollars.
Inflation is also part of the Ciccone story. The government needs all the money-printing capacity it can get its hands on to fuel the economy (even now when it is slowing down).
The President’s economists are also refusing to introduce bills higher than 100 pesos. Former Central Bank head Alfonso Prat-Gay, a lawmaker for the opposition Civic Coalition, claims that the real solution to the saga is to start printing 500-peso bills to cater for growing prices. Kicillof, predictably, thinks exactly the opposite.
At least part of the global media is now treating Argentina as a bit of a rogue state over all the regulation that it going on. An article in one magazine, Foreign Policy, recently portrayed Boudou as one of the five most outlandish vice-presidents in the world. Yet is the ideological argument over politics in schools and Boudou’s reputation enough to write off this government as dictatorial?
What is worrying for the opposition is the kind of majority the national government enjoys in Congress each time it submits a bill. Ciccone’s expropriation was backed by some opposition lawmakers. That explains Wednesday’s whopping 145-78 score line.
Polls show that Fernández de Kirchner’s popularity has dropped, especially after the Once train station crash that killed 51 commuters in February.
Most pollsters now show the President’s approval rating has dropped to under 40 percent. Yet Fernández de Kirchner was in a similar situation in 2009 when the ruling party lost the midterm elections (with Kirchner in person as a congressional candidate in Buenos Aires province).
And a good performance for the Victory Front next year could leave the ruling party close to the two-third majority, required to reform the Constitution to allow Fernández de Kirchner to seek a third consecutive term in office in 2015. The constitutional reform card has not been played by Fernández de Kirchner yet. But the opposition’s engineering is now directed at trying to stop any such drive.
Macri on Thursday met with Córdoba Governor José Manuel de la Sota, a Peronist who is now at odds with the national government (especially over pension funds). Also gearing to oppose the Kirchnerite machine in 2013 is teamster Hugo Moyano, the leader of a faction of the General Labour Confederation (CGT) that is also now, to quote the national government, “in the opposition.”
Moyano headed a rally at the Luna Park arena on Thursday with his son Facundo Moyano, a Victory Front lawmaker. The Moyanos were key strategic allies for Kirchner. But the alliance soured when the President, ahead of last year’s elections, refused to meet the CGT’s political demands and complained about trade union “black mail.”
The Moyanos are now part of a potential opposition coalition that is readying for what it is describing as a showdown in 2013 to quash any moves to allow for Fernández de Kirchner’s re-election.
The President’s political fate will ultimately depend on how Kicillof’s economic experiment works out.
Argentina is now openly exchanging accusations of “protectionism” with the United States (and Japan) at the World Trade Organization (WTO). The WTO dispute went on all week.
Yet the Kirchnerite administration had a market-friendly moment on Thursday when top national government officials addressed a gathering organized by the Council of the Americas in Buenos Aires. The speakers included Miguel Galuccio, YPF’s recently-appointed chief.
Galuccio on Thursday tried to woo investors to the state-run company declaring that he would personally offer “protection” to investments in YPF. Protection from what? There’s a question. Maybe Galuccio can answer it. Argentina’s economic shots, according to the financial press, are being called by a “neo-Marxist.” But Fernández de Kirchner still calls her recipes capitalist and YPF is looking for investors. And why not? Capitalism, in the Kirchnerite era, is a broad concept. Now pour yourself another coffee and ponder on that.