History has a nasty habit of repeating itself in Argentina. The country has defaulted nine times on its sovereign debt amid economic crises so frequent that they have become a way of life. The economy minister’s job is especially perilous: 17 people have held the post this century, in tandem with 13 central bank governors.
Investors have a familiar wish list too. Private sector investment is essential to lift the economy out of recession. Government spending should be curbed to reduce one of the world’s highest inflation rates. An agreement is needed with the IMF to reschedule debt and restore access to international markets.
Yet the Peronist government’s response to a recent drubbing in primary elections involved none of these things. Instead, a feud between its leading figures, President Alberto Fernández and vice-president Cristina Fernández de Kirchner was followed by a cabinet reshuffle to increase the power of Kirchner and short-term spending measures to boost Peronist fortunes in November’s midterm congressional elections.
This duo was never going to be an easy political act to pull off. Kirchner is Peronism’s towering figure, serving as president from 2007 to 2015. Fernández, who is no relation, worked briefly as Kirchner’s cabinet chief but resigned abruptly in 2008 in a dispute over the extent of government intervention in the economy.
The pair united before the last election but important differences remained. His instincts are more pragmatic while she is wedded to stronger intervention, generous welfare spending and unorthodox measures to pay for it. Her diagnosis of the Peronists’ primary defeat was that Fernández had pursued mistaken austerity policies.
Other problems faced by the Peronists are largely of their own making. The president imposed one of the world’s longest and strictest lockdowns, which crippled the economy but failed to control the virus. As a result, Argentina has one of the world’s highest mortality rates from Covid-19. Vaccinations were compromised by an early decision to place a heavy bet on Russia’s Sputnik jab.
A scandal over privileged access to vaccination for well-connected Peronists was followed by another over an illegal birthday party held by the president for his girlfriend at his official residence at the height of lockdown.
Business confidence remains low, hurt by numerous government interventions in the economy to control prices, manage the exchange rate and tax agricultural exports. Argentina remains cut off from international debt markets in the absence of an IMF agreement, forcing the government to print money to fund spending.
Kirchner’s diagnosis of the situation is faulty. While the pandemic has worsened social tensions and the needs of the least fortunate are pressing, extra spending now will only worsen inflation, which mainly hurts the poor. Without a revival of the private sector in Argentina, there will be no money for the government to spend.
It is probably too much to hope for sensible economic policies before November’s midterms, in which the Peronists’ senate majority is at risk. But after that the government should move swiftly to restore business confidence, reduce intervention in the economy, trim public spending and reach an IMF accord.
If it does not an economic crisis beckons, followed by an opposition victory at the next presidential election. That, surely, is one piece of Argentine history Kirchner will not be keen to repeat.
Source: Economy - ft.com
