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Argentina is entangled in a spiral of economic crisis and political disputes

Cristina Fernández de Kirchner with Alberto Fernández, during an event in December 2021.
Cristina Fernández de Kirchner with Alberto Fernández, during an event in December 2021.MARCOS BRINDICCI (Getty Images)

The Peronists celebrated this Friday the 48th anniversary of the death of Juan Domingo Perón, the founder of the movement. And they did it separately. On the one hand, the president, Alberto Fernández, sat down in front of union leaders and ministers at the headquarters of the General Confederation of Labor, the CGT, in Buenos Aires, a building from the 1940s that is the synthesis of Peronism. On the other, Cristina Fernández de Kirchner, the vice president, who organized her own rally for this Saturday in the industrial suburbs of the Argentine capital, her electoral stronghold. The photo of the fracture, which is not new, is the political epilogue of a week in which the Argentine economy went through unprecedented stress peaks: the president denounced a “market coup” that collapsed the value of the peso against the dollar in the market unofficial and further plunged the value of Argentine debt bonds on the international market.

On Monday, the Central Bank ordered restrictions on the access of dollars to pay for imports. It was a corset forced by the need for reserves to cover the soaring value of gas and diesel purchases abroad. Argentina is going through a fatal combination of a rise in imported volume, due to the winter and the post-pandemic reactivation, and international energy prices. The account has skyrocketed and the Central does not have enough dollars to settle the account. “In June, 2,000 million dollars of energy were imported and in May 1,800,” says Agustín D’Attellis, director of the Argentine Central Bank. “When the year started we had a projection of payments of 6,000 million dollars that was in line with the needs of the economy. But with the skyrocketing of prices, product of the war in Ukraine, those 6,000 million were 8,000. Today we have 2,000 million more spending on energy, ”he explains.

The measures announced on Monday by the Central Bank intend to extend from 90 to 180 days the term for importers to access dollars at the official price, today at 125 pesos. “We told companies to look outside for that extra period of time,” says D’Attellis. The savings involved in delaying the delivery of dollars to importers will make it possible to pay the energy bill, according to government calculations, and add reserves. Only this week, the issuing bank bought 1,530 million dollars in the market, which it added to international reserves. “That allowed us to end June meeting the objective of accumulation of reserves committed to the IMF” in the refinancing of the debt signed in January, says D’Attellis. The director of the Central Bank also said that the Government complied in the second quarter with the reduction of the fiscal deficit and the agreed monetary issue goal.

The week, however, was dizzying. On Tuesday, the Argentine Treasury had to refinance maturities for 258,000 million pesos (about 2,000 million dollars at the official exchange rate) in private hands, and rumors spread that there would be no banks willing to renew their bonds. The objective, finally, was achieved, but the Government had to pay rates of 60% per year, while 85% of the new debt was contracted with very short maturities, to 2022. “It was a very stressful day,” admitted the director of the Central Bank, which accused opposition economists of encouraging the ghost of a default on the debt in pesos.” There was a run against titles in pesos that stressed that need for renewal”, said D’Attellis. It was in this context that the president, Alberto Fernández, spoke of an attempt to “market coup”

It happens that economic policy does not have much room for creativity. Last January, Argentina promised before the IMF to reduce its fiscal red until reaching balance in 2024, to accumulate reserves and, above all, to reduce inflation. Damián Di Pace, economic consultant and director of Focus Market, says that this agreement, which should generate a blow to confidence in the Argentine economy, has been of little use. “It failed to clear the uncertainty in the markets. Neither the deal with the IMF this year nor the deal with private creditors in September 2020. The very rationale why you needed to defer payments is still there,” he says.

The value of Argentine bonds is an example of this. “10-year bonds have a yield of 48% [con respecto al 100% de su valor nominal] and those from Ukraine, which is at war, have 37%. Argentina’s risk is that of a country at war,” she says. “Argentina did not manage to support the refinancing with a forceful balance of its macroeconomic picture. It’s like going to the bank to ask them to postpone your credit card payments and continue spending. The bank no longer believes you and the rate goes up”, argues Di Pace.

Meanwhile, year-on-year inflation is already above 60%, with the forecast for December comfortably above 70%. For the director of the Central Bank, the war in Ukraine is behind this rise above the 45% that the technicians projected in January. “The impact has two mechanisms. One is due to the price of energy, because we are importers and it hits us in the accumulation of dollars. In the case of food, although we are exporters, there is a transfer to the prices of the companies that sell abroad”, says D’Attelis.

Seen in this way, Argentina’s underlying problem is not very different from that of other countries that today see their CPI measurements rise, although at lower scales. We return then to the acts to remember Perón’s death, evidence of the fracture that today divides Albertists, by Alberto Fernández, and Kirchnerists, by Cristina Kirchner.

Since Argentina signed the agreement with the IMF, Kirchner, his ministers and the party that represents her, La Cámpora, have become opponents within the government. The fight is increasingly public and fierce. This week, one of the leaders of La Cámpora, Andrés Larroque, warned President Fernández that “the moderate phase is exhausted.” Argentine politicians are already in an electoral key and the operative clamor is growing for Cristina Kirchner to be a candidate for president.

Cross-attacks at the top of power do nothing more than add noise to official efforts to put the economy in order. D’Attellis himself, from the board of directors of the Central Bank, admits that the businessmen with whom he speaks bring up the subject of internecine fights in every conversation. “The crossings between referents of the space itself generate noise and part of the job is to communicate to the main economic actors that they are rude, typical of economic policy,” he says. For Di Pace, the fights only make things worse. “Alberto Fernández said that you cannot live with an eternal fiscal deficit; the next day, the opposition within the ruling party [el kirchnerismo] He said that it was necessary to raise the minimum wage, which is what determines the value of all pensions and social assistance plans,” he complains.

The expectations of a truce between Fernández and Kirchner are increasingly remote. The presidential binomial is attacked in public acts whenever it can. This Friday it was the president, who from the CGT headquarters said that “power does not go through seeing who has the pen [para firmar decretos oficiales], but to see who has the ability to convince”. This Saturday the response of Cristina Kirchner will arrive.

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