By Ryan Dube
Dec. 14, 2015

President Macri says measure to boost production, bring in money from grain sales

Argentine President Mauricio Macri said Monday that his government will eliminate export taxes on some agricultural products, dismantling one of his predecessor’s key economic policies.

Mr. Macri said that export taxes would be eliminated for corn, wheat and meat, while his government would reduce taxes for soybean exports.

Mr. Macri said that the measure would boost agricultural production. The government is also hoping that the sale of the grains will provide it with much-needed dollars to bolster its rapidly dwindling central bank reserves.

The export taxes were a critical economic policy during the administrations of former president Cristina Kirchner and her late husband, Néstor Kirchner, during the past decade.

The export tax on soybeans will drop to 30% from 35%. The Kirchner administration used the tax revenue to fund expansive social programs, something the Macri administration has pledged to continue.

Mr. Macri, the former business-friendly mayor of Buenos Aires, replaced Mrs. Kirchner last week after winning a second-round runoff vote in November.

By Peter Prengaman
December 14, 2015

BUENOS AIRES, Argentina — Fulfilling a campaign promise to overhaul Argentina’s agricultural sector, President Mauricio Macri on Monday announced the elimination of export taxes on key products, a move that will also have a deep impact on how Latin America’s third largest economy is funded.

Macri made the announcement while meeting with farmers in Pergamino, about 135 miles (220 kilometers) northeast of Buenos Aires. Starting Tuesday, export taxes will be eliminated on corn, wheat, meat and fish. Export taxes on soy beans will be lowered from 35 to 30 percent.

“Without the agricultural sector, the country can’t move forward,” Macri said in comments that were broadcast live.

The South American nation is one of the world’s breadbaskets. However, the sector struggled amid frequent fights with former President Cristina Fernandez over the last eight years. She kept export taxes high to stimulate local consumption and keep the prices of bread, corn, meat and dairy products low at home.

The taxes were also a key part of financing her government, which spent heavily on social welfare programs for the poor.

Farmers argued that the taxes put a cloud over the industry and led to distortions in crop rotations and production. For example, because of low profits with corn, many farmers used more of their fields for soy beans, which brought in more money.

The high taxes also led to massive hoarding, something that Fernandez’s administration struggled to crack down on. Some economists estimate that the current amount of hoarded crops represent about $13 billion in exports.

Macri said farmers no longer would “have an excuse” to wait in hopes of better prices. He also promised to crack down on those who continued to hoard.

“We must stop being the world’s barn to become the world’s supermarket,” said Macri, who ran on free-market principles and defeated Fernandez’s chosen successor in elections in November.

Macri, who was inaugurated last week, is betting that opening up the sector will bring more badly needed revenue to state coffers than the high-tax model implemented by Fernandez, who argued the rural sector could and should pay a huge share of funding government.

But for much more money to come in, economists say the agricultural changes must be coupled with deeper, across-the-board reforms, such as eliminating restrictions on buying U.S. dollars that has created a booming black market. Currently, Argentina’s official rate is around nine pesos to the dollar. On the black market, a dollar has fetched as much as 16 the last year.

Problems in currency exchange markets have made operating difficult for farmers, who must deal heavily in dollars to both export crops and import heavy machinery. During the campaign, Macri promised to lift the restrictions. Late Monday, he told a group of business leaders that his government would move toward lifting restrictions this week, but did not provide details. Macri also announced the lifting of restrictions on many non-agricultural products, arguing that such measures ultimately hurt Argentine competitiveness.

“The word today is hope, not happiness,” said Fernando Boracchia, vice president of a large rural association who also raises sheep on 550 acres outside of Buenos Aires. “These changes won’t mean anything if they don’t come with a fix for the exchange rate problem.”

Back to contents

By Andres Oppenheimer
December 12, 2015

President Barack Obama has never been terribly interested in Latin America, but the new political winds in Argentina, Venezuela and the latest events in Brazil offer him a golden opportunity to improve U.S. relations with the region.

Last week’s inauguration of center-right President Mauricio Macri in Argentina after 12 years of leftist anti-American governments, alongside the landslide opposition victory in Venezuela’s Dec. 6 legislative elections have changed South America’s political map. Venezuela’s “Bolivarian” revolution and its political allies are now on the defensive, after more than a decade of dominating the region’s political agenda.

And Brazil, which until now was an unconditional ally of Venezuela, is gradually shifting away from its leftist foreign policy.

Brazilian President Dilma Rousseff is facing an impeachment in Congress, and badly needs the support from legislators who are critical of Venezuelan President Nicolás Maduro’s abuses. The last thing she wants is to further antagonize the very members of congress whose votes may decide whether she stays in office.

Amid this backdrop, Obama should make a trip to Latin America in the first half of 2016, and offer U.S. support to Macri and other presidents, while seeking to counter-balance China’s growing influence in the region.

Granted, Obama will be a lame-duck president next year, but he could do a lot to improve U.S.-Latin America ties. Former President George W. Bush made a visit to five countries in the region near the end of his second term in 2007, which helped solve pending problems with several of them.

Obama could start his trip in Mexico, where he could send a powerful message to the world that Mexican immigrants to the United States have been a big asset to this country.

He could draw attention to fact that China has surpassed Mexico as the biggest source of immigrants to the United States, and that more Mexican immigrants are returning to their home country than crossing the border to the United States. By doing that, Obama would be helping his own Democratic Party debunk Donald Trump’s xenophobic rhetoric, in case Trump is still running for office by then.

In Mexico, Obama could also seek ways to maximize the integration of the Alliance of the Pacific economic bloc — consisting of Mexico, Colombia, Peru and Chile — to the 12-nation Trans Pacific Partnership (TPP) free trade area that has just been signed by 12 Asian and American countries. Obama could explore indirect ways of helping Colombia, which is not a TPP partner, to indirectly benefit from TPP through its Alliance of the Pacific partners.

Obama’s trip to Argentina would be a strong signal of support to Macri, who has inherited a bankrupt country and badly needs to restore international confidence to get much-needed investments.

It would also be a way for Obama to make up for his mistake of last week, when he sent a relatively low-level delegation headed by the U.S. Secretary of Transportation to Macri’s inauguration. Macri’s inaugural ceremonies were attended by eight presidents and several vice-presidents and foreign ministers.

Obama could also stop in Uruguay, where President Tabare Vasquez is a more serious and potentially friendlier counterpart than previous President Jose Mujica. And the U.S. president could make a stop in the English-speaking Caribbean, to offer Caribbean countries more technical help to solve their energy shortages now that bankrupt Venezuela is reducing its Petrocaribe oil subsidies to the region.

U.S. officials have already said that Obama wants to visit Cuba next year, presumably to promote his legacy as the U.S. president who re-established diplomatic ties with that country’s regime after six decades of confrontation. Asked whether Obama will go to Argentina, U.S. officials tell me there are no concrete plans for that trip, but there is a fifty-percent chance that he may do so.

My opinion: Obama would make a big mistake by going to Cuba without visiting Argentina, a much bigger country with a democratically elected president who has vowed to leave behind his predecessor’s sterile ideological battles, and focus on prosperity. Let’s hope that Obama doesn’t blow it — like he did by sending an envoy who went unnoticed among the foreign dignitaries attending Macri’s inauguration — and starts refocusing U.S. attention on Latin America.

Back to contents

By Jonathan Gilbert
Dec. 14, 2015

BUENOS AIRES — A bus full of police officers veered off a bridge in northern Argentina early Monday and plunged at least 50 feet into a ditch, local officials said. Forty-two officers were killed and another nine were hospitalized, according to Francisco Marinaro Rodó, the civil defense secretary for Salta Province, where the crash took place around 2 a.m.

The bus was on its way to San Salvador de Jujuy, a city about 175 miles from the border with Bolivia, with between 50 and 60 border police officers on board.

It was traveling along Route 34, a road that is poorly maintained in some sections and has deep potholes, especially near the bridge, in a rural area called Balboa, Mr. Marinaro Rodó said in an interview with Todo Noticias, a television news channel. Pavement close to bridges can be particularly susceptible to damage from heavy trucks braking as they approach, he said.

Local officials said the crash was most likely accidental. Mr. Marinaro Rodó said one of its tires may have blown out. News photographs of the scene showed the bus laying upside down in the ditch.

President Mauricio Macri offered condolences to the victims’ families during a speech on Monday. “We have to improve the country roads, so that these things don’t keep happening,” the president said.

Mr. Macri, who took office on Friday, has promised to modernize Argentina’s neglected northern provinces. As part of a program called the Belgrano Plan, he wants to spend $16 billion improving transportation in the region, including upgrading hundreds of miles of Route 34. The route runs nearly 1,000 miles from the port city of Rosario on the Paraná River to the Bolivian border at Yacuíba.

“The road is full of potholes,” Gustavo Díaz, the head of a volunteer fire department that took part in the emergency response from Rosario de la Frontera, a town near the crash site, told local reporters. “You have to proceed with caution, because we’ve seen various vehicles have accidents or overturn there. Surely, the driver was tired and did not see the pothole.”

Gustavo Solís, the mayor of Rosario de la Frontera, told the local news media, “Those of us who know the area try not to travel there at night.”

Back to contents

By Carlos Malamud
December 14, 2015

BUENOS AIRES – Mauricio Macri, Argentina’s new president, was the candidate standing for Cambiemos, the broad center-left and center-right coalition that defeated Cristina Kirchner in the recent elections. What Macri defeated above all was an ugly, black and white approach to politics that rejected bipartisan solutions and sought to foster polarization.

According to Ipsos Public Affairs, Cristina Fernández’s mandate came to an end with a 52% approval rating – not bad considering that everyone knows her family’s personal fortune multiplied 15 fold from 7 million to 100 million pesos in the course of three terms in office (two with her husband Nestor as the incumbent president and one with the widow at the helm).

Such a degree of positive recognition stems from the fact that “Kirchnerism” actually did some good things, especially in the earlier years when the main point of reference as perceived by Argentinians was the crisis of 2001 and 2002. Between 1998 and 2002 Argentina’s GDP fell by 18%, its currency lost 70% of its value and its per capita income in US dollars collapsed by around 68%.

According to the Kirchner governments’ official version (Néstor Kirchner, 2003-07, and Cristina Fernández, 2007-11 and 2011-15), the narrative of their years in power is that of the “saved decade.” The period is cast in a triumphal light, with significant successes at the outset fueled by favorable commodity prices and the expansion of the Chinese economy.

The reality today however, as President Macri takes over, is far more of a toxic than triumphal inheritance. The ‘saved decade,” it turns out, was more of a wasted opportunity disguised in statistical trickery and fake inflation figures.

The grand tragedy of the Kirchners’ era of governance is the failure to have exploited the tail wind of the golden years of booming commodity exports. A fair part of what was then accrued was subsequently dissipated in populist policies that failed to allow an increase in national savings or the accumulation of greater social capital for investment in the futre, as shown by the exponential growth in the number of public employees and beneficiaries of state hand-outs.

Among the new government’s main economic problems is an inflation rate of over 25%, the second highest in Latin America after Venezuela. It stands in stark contrast to the “official” 14% reported by the National Statistics and Census Institute (Instituto Nacional de Estadísticas y Censo or INDEC), proof of the government’s manipulated measurements. This is one of the leading points of disagreement between the Argentine government and the IMF, which prevented it over the past seven years from carrying out its annual updates. The IMF refuses to recognize Argentina’s official inflation data.

There is also the decline in the Central Bank’s reserves, dropping from a high of U.S. $52 billion in 2010 to the current U.S. $10 billion (although some speak of U.S. $5 billion or even less). To this should be added the restrictions imposed by the Kirchner regime on the acquisition of foreign currency for both companies and individuals, mostly affecting the U.S. dollar, which remains the Argentines’ preferred saving option. This is not to mention the pending negotiation with the so-called debt holdouts of foreign creditors presented by Fernández as an episode in the struggle against imperialism more than as a necessity brought about by government inaction.

Another no less important problem is the payment of subsidies, which consume a large volume of public income and have raised the budget deficit, which in 2015 accounts for 7.2% of GDP, the highest level since 1982, while subsidies themselves total more than 4% of GDP. In the budget approved for the coming year by the outgoing government, subsidies -mainly to the energy and transport sectors- total 179 billion pesos, 5% less than in 2015. Worse still, in large part they are directed at helping middle and higher segments rather than lower-income groups.

The new government’s inheritance is not only economic. Drug trafficking, corruption and public safety have become pressing challenges. A not unimportant contributing factor to the defeat of Kirchnerism, in addition to economic woes and the system itself running out of steam, has been the increase in crime rates and the feeling of vulnerability felt by the bulk of Argentine society.

As for foreign policy, a priority will be restoring a workable relationships with the country’s traditional partners -the US, the EU and other Latin American countries, including Colombia, Mexico and Peru- adversely affected by policies that favored new ‘friends’, such as Iran and Russia. Argentina’s international agenda was more in line with the recommendations of Hugo Chávez, who became a species of mentor for Fernández, than with the country’s own interests.

One of the Kirchner regime’s abiding traits has been its appropriation and colonization of the state. A striking example has been the outgoing President’s eleventh-hour attempt to retain her official Facebook, Twitter and Google accounts, something she looks unlikely to achieve. In her infantile tantrum of not taking part in the handover of power unless under her own conditions, Cristina Fernández went as far as to compare herself to Cinderella in her farewell address, which was more of a harangue to benefit her followers than an institutional speech marking the democratic transfer of power.

Macri’s arrival at the Casa Rosada will completely upend Argentine political life and the country’s style of government. Beyond the campaign of fear orchestrated by the Kirchnerists during the election campaign, a majority in Argentine society have decided to give a chance to the program advocated by Cambiemos. Mauricio Macri certainly does not have an easy job ahead and he can look forward to four very tough years. Hence the appeal, in his inaugural address, to dialogue and consensus. It would be desirable, for Argentina’s own good, over and above Fernández’s ambition of returning to power in 2019, that his term in office should be a success.

Back to contents

By Benedict Mander in Buenos Aires
December 14, 2015

Mauricio Macri on Monday made his first big economic announcement as Argentina’s new president, scrapping taxes on agricultural exports in a bid to boost precariously low central bank reserves.

Confirming a campaign promise to Argentina’s key farming sector, the world’s largest exporter of soyabean derivatives, Mr Macri said taxes on grain and beef exports will be removed immediately, while a 35 per cent tax on soya exports will be cut by 5 percentage points a year.

The move represents the first in a raft of imminent reforms as Mr Macri seeks to kick-start Argentina’s flagging economy, and aims to return profitability to the country’s struggling farmers who often came to blows with the former president, Cristina Fernández, over heavy-handed government intervention.

“This country cannot get by without farmers,” Mr Macri said on Monday, surrounded by a wheat field in the province of Buenos Aires, near one of the focal points of bruising farming strikes in 2008 that were held in protest against punitive rises in export taxes.

“You will have to do your bit, which is to export fewer [unrefined] grains,” Mr Macri told a group of farmers, urging them to add more value to their produce.

“We have to go from being the breadbasket of the world to the supermarket of the world,” he said.
To compensate for the fall in revenues, the government hopes the measures will stimulate a dramatic increase in production and to receive more through taxes on profits.

Mr Macri also promised to crack down on tax evasion.

“It is the correction of an error committed by the previous government,” said Gustavo Grobocopatel, president of one of Argentina’s largest farming groups, Los Grobo.

While Argentina’s tax agency has estimated that farmers are hoarding as much as $11.4bn of soya, corn and wheat, officials hope to attract at least $6bn dollars through farming exports in the short term, in order to bolster foreign exchange reserves which fell below $25bn last week.

Some economists calculate that liquid reserves are close to zero.

Nevertheless, analysts say farmers are likely to continue hoarding grains until Mr Macri fulfils another campaign promise to unify Argentina’s chaotic exchange rate regime and implement a de facto devaluation, which would allow farmers to receive more pesos for their exports.

Dollars are worth about 9.7 pesos at the official exchange rate, although on the black market they fetch almost 15 pesos.

Economists expect the new exchange rate to move closer to the black market rate, although some warn that the government needs to strengthen foreign exchange reserves first to enable the central bank to manage an orderly devaluation.

To that end, the government is reported to be negotiating the issue of a bond for as much as $10bn to a group of international banks including HSBC, JPMorgan, Goldman Sachs, Deutsche Bank and Citibank, according to local newspaper La Nación.

Another avenue being explored to provide support to central bank reserves is the renegotiation of a currency swap agreement with China.

Back to contents

By Diego Laje and Michael Pearson, CNN
Mon December 14, 2015

(CNN)—A bus carrying Argentine frontier police plunged off a bridge in rural northern Argentina on Monday, killing 43 people on board, a spokeswoman for the provincial governor’s office told CNN.

The bus, part of a three-bus convoy, came to rest in the Balboa River near the northern Argentina city of Rosario de la Frontera, roughly 1,160 kilometers (720 miles) northwest of Buenos Aires. Authorities said 51 people were on the bus.

Eight people were hospitalized, Lucía Mallozi, an official in the office of the governor of Salta province, told CNN.

Two were flown by helicopter to a hospital in the city of Salta, Mallozi said. The remaining six were being treated at a hospital in Rosario de la Frontera and their injuries were not considered critical, according to Mallozi.

An official at the scene, Ernesto Flores, the provincial undersecretary for civil defense, had earlier reported 41 deaths and nine injuries.

Rescuers were trying to use a large crane to pull the bus from the river so they could retrieve bodies still trapped inside, according to Flores.

“There are still 30 bodies to retrieve. It´s complicated because it´s at the bottom of the river,” he said.

Authorities believe a tire blew on the bus, sending the vehicle careering off the bridge, Flores said.

The passengers were members of the Argentine National Gendarmerie, a national police force organized along military lines that provides border security and some domestic security functions.

“This has been the largest loss of life in the history of the force,” a border police spokesperson told CNN.

Back to contents

December 14, 2015

At least 41 Argentine police members were killed Monday after a bus they were traveling in flipped and fell off a bridge in the northern part of the South American nation.

Authorities say the crash happened early Monday while a convoy of three buses with gendarmes officers was traveling near Salta, a city about 932 miles north of Buenos Aires.

“Between 50 and 60 border patrol officers were on board. Some are still trapped,” provincial emergency director Ernesto Flores told the La Red radio station, according to Reuters.

Angel Marinaro, civil defense director for the province, told local station TN that for unknown reasons the driver of one of the buses lost control as the convoy was crossing a bridge.

The vehicle flipped and fell off the bridge, landing about 65 feet below. Local television images show an overturned bus and rescue crews working the scene.

Gustavo Solis, the mayor of Rosario de la Frontera – a city in the area – told the AFP that the road where the accident happened is known to be in poor condition.

Authorities say survivors are being taken to a nearby hospital.

Police said in a statement that visibility was good at the time of the accident and they are considering mechanical failure as a possible cause, according to Sky News.

Back to contents

By Pablo Rosendo Gonzalez
December 14, 2015

* `No more excuses to not produce more,’ he tells farmers
* Soybean levy reduced to 30% from current level of 35%

Argentine President Mauricio Macri carried through on a campaign pledge by eliminating export taxes on agricultural goods including beef, wheat and corn while cutting a tariff on soybeans by 5 percentage points.

“There are no more excuses to not produce more,” Macri told farmers gathered in Pergamino, 245 kilometers (152 miles) west of Buenos Aires. “I will sign the decree today for the end of punitive export taxes and government regulations.”

The unwinding of taxes on agricultural exports comes as Macri, who took office last week, is trying to rebuild international reserves that are at a nine-year low. The tax agency, known as AFIP, estimates that as much as $11.4 billion of soy, corn and wheat are being held by farmers waiting to be sold. Export tariffs were increased in the past decade under former presidents Nestor Kirchner and his wife Cristina Fernandez de Kirchner in a bid to boost government revenue.

Argentine farmers have protested the taxes for several years, primarily since 2008 when Fernandez unsuccessfully tried to increase the soybean export tax to 45 percent from 35 percent.

Wheat futures for March delivery fell as much as 0.5% to $4.88 1/4 a bushel in Chicago after the announcement.

Exchange Rate

Farmers have been hoarding grains in silo bags to protest farm policies as they wait for a more competitive exchange rate. The government has tightly controlled the peso exchange rate, currently at 9.77 per dollar, compared with a black market rate of about 14.86.

Macri has also promised to let the peso float and have a single exchange rate.

Export tariff on soybeans will now be 30 percent. The taxes on beef, wheat and corn were previously 15 percent, 23 percent and 20 percent, respectively.

Argentina, the world’s largest exporter of soybean derivatives, has shipped $17.9 billion of grains and oilseeds abroad this year, the lowest for the period since 2009, according to data compiled by exporters. The 2015-16 soybean crop output may be a record 62 million metric tons, according to Leonardo Sarquis, one of Macri’s agriculture advisers.

Since 2007, many farmers switched to unregulated crops such as barley to avoid the taxes. The 2015-16 wheat crop being harvested may be the smallest in three years, down 16 percent from a year earlier at 9.5 million tons, according to Argentina’s biggest grain exchange.

Back to contents

By Pablo Rosendo Gonzalez and Charlie Devereux
December 14, 2015

* Electricity, nat gas tariffs to be increased in coming weeks
* `Country must save in energy to reduce deficit,’ minister says

Argentina’s energy tariffs, which have been frozen for more than a decade, will be allowed to increase as new President Mauricio Macri’s government attempts to close the largest fiscal deficit in more than 30 years.

Tariffs on electricity and natural gas will be raised after mandatory public hearings in the next few weeks, Energy & Mining Minister Juan Jose Aranguren told reporters at an oil industry event in Buenos Aires on Monday. Utility company Edenor’s shares in New York jumped 3.2 percent after the announcement.

“Those who can pay the real price of energy must start paying it,” Aranguren said. “For those who can’t, we will open a registry so they can keep paying a subsidized bill.”

Utility tariffs have been largely frozen since the country’s economic crisis of 2002 after the previous administration prohibited companies from raising prices, saying that lower bills benefited the economy by boosting consumption. Tariffs in Argentina are about a 10th of the average in Latin America, Livio Gallo, a director of Enel SpA, which runs Edesur electricity distributor in Buenos Aires, said at a conference on Dec. 3. Macri took office on Dec. 10.

Subsidized Prices

Subsidies on utility bills are the main contributor to the country’s budget shortfall, which the Auditor General’s office expects to widen to 7.2 percent of gross domestic product, the largest since 1982. Electricity bills in upper-middle class homes in Buenos Aires are as low as 40 pesos ($4.09) every two months. A monthly electricity bill in Buenos Aires costs about the equivalent of a coffee and croissant.

Utilities have operated in a zombie-like state for years, with Cristina Fernandez de Kirchner’s government propping them up just enough to continue providing services while controlling how they use funds for investment. Fernandez limited power companies losses by subsidizing electricity prices charged by wholesale electricity seller Cammesa SA, which is controlled by the state, and by forgiving debt and fines owed to the government.

Aranguren said Argentina’s current $75 a barrel oil price will be “reviewed to favor consumers.” Since August 2012, state-run oil company YPF SA’s fuel prices have been boosted 131 percent.

Argentina motorists pay about 42 percent more to fill their gas tanks than their Brazilian neighbors.

For oil producers, a price higher than the international price of crude will be maintained to keep domestic output at current levels until the two prices converge some time in the future. Argentina’s $75 a barrel is more than 50 percent higher than WTI, which dropped below $35 in New York earlier Monday for the first time since 2009.

Faced with a $6-billion energy trade deficit in 2014, Fernandez’s government kept the price of oil high as international prices collapsed in order to boost domestic production.

Back to contents

By Charlie Devereux and Silvia Martinez
December 14, 2015

* CPI and GDP reports won’t be published until further notice
* New government finds severely deteriorated statistics agency

Argentina will delay publishing economic indicators, including inflation and growth figures, after the statistics agency’s new directors said they found it in a state of deterioration and lacking qualified staff.
Indec, as the agency is known, won’t publish November results for the national consumer price index that’s due on Wednesday or third quarter gross domestic product report due on Dec. 22, technical director Graciela Bevacqua said at a press conference today in Buenos Aires. Indec will provide a new schedule in the coming days, she said.

Former President Cristina Fernandez de Kirchner’s government created a new inflation index and modified its gross domestic product index last year after Argentina became the first country to be censured by the International Monetary Fund for reporting inaccurate data. In spite of the changes, private economists say the numbers still varied significantly from their own estimates.

“We can reveal what we suspected which is that we found a consumer price index that had been completely dismantled,” Bevacqua said. “There’s no supervision which means we will have to fill the positions with qualified people.”

Consumer prices rose 14.3 percent in October from a year earlier, according to Indec. That compares with an increase of 22 percent as reported by Elypsis, a Buenos Aires-based economic consultancy.

President Mauricio Macri assumed office on Dec. 10 pledging to reform the statistics agency that he said was publishing false information.

Back to contents

By Carolina Millan and Daniel Cancel
December 14, 2015

* Resolving futures impasse key to proceeding with devaluation
* Banks may have $1.8 billion to sell: central bank official

Argentina’s central bank ordered financial institutions to unwind their foreign-currency positions as part of an agreement with futures exchanges to reduce a liability left behind by the previous administration’s sale of dollar forwards at below-market prices.

“In the context of the situation in the dollar futures market, the Central Bank of Argentina (BCRA) will require financial entities to reduce completely their global net position in foreign currency, that includes spot and future positions,” the bank said in an e-mailed statement.

In a regulatory filing late Monday, the Rofex futures exchange said it had agreed to add between 1.25 and 1.75 pesos per dollar to contracts opened since Sept. 29 to settle a dispute with the incoming government of Mauricio Macri. While the central bank run by former chief Alejandro Vanoli sold futures agreements due in February at about 10.5 pesos per dollar, offshore forwards trade at 15.13 pesos. The spot rate for the peso, which Macri plans on letting float, is currently 9.78.

Trading volume on the Rofex more than doubled from a year earlier to a record in October as investors sought to profit from the growing gap between prices in onshore and offshore markets, a divergence that was fueled by the central bank intervening to tame devaluation expectations.

Macri, who took office Dec. 10, told a room full of businessmen Monday that his team is working to lift currency controls this week by letting the peso float as he tries to rebuild the nation’s foreign-exchange reserves, which are at a nine-year low. The scrapping of a crawling peg for the peso will bring the currency closer to the black-market rate of 14.7 pesos and and establish a single exchange rate after four years of controls, Finance Minister Alfonso Prat-Gay said ahead of the Nov. 22 elections.

Federico Sturzenegger, the new central bank president, had to resolve the futures impasse before proceeding with lifting controls in order to reduce the bank’s liability stemming from the contracts, said Rafael Di Giorno, a director at Proficio Investment in Buenos Aires. Economic consultancy Elypsis estimates the central bank would have been on the hook for the equivalent of about $10 billion in pesos to settle the agreements.

“The government has to devalue as soon as possible since they need an inflow of dollars to rebuild reserves, especially from exporters,” Di Giorno said. “If they had devalued without fixing these contracts they would have faced a huge loss.”

The central bank will likely try to repurchase the foreign-currency contracts sold by the banks, he said. Argentine banks have about $1.8 billion worth of foreign-currency holdings that will have to be unwound, according to an official at the monetary authority who isn’t authorized to speak publicly on the matter.

Back to contents

By Sarah Marsh and Jorge Otaola
Dec 14, 2015

Argentina’s much-maligned statistics office will take months to revamp and it is unclear when the first reliable data will be ready for publication, the office’s new director said on Monday, after an election brought to power a centre-right government.

New President Mauricio Macri wants to win back confidence in Latin America’s third-largest economy in order to increase much-needed investment. For years, data produced by the INDEC office has been broadly seen as inaccurate and politically motivated.

Consumer price data in particular has shown inflation about half the rate estimated privately. Critics said the government massaged the data to reduce payments on its inflation-indexed debt and rein in inflation expectations.

“It is incomprehensible that (the agency) was degraded to the extent it has,” said Jorge Todesca, new INDEC director. “The INDEC is riddled with false or biased information.”

The latest available official data reported annual inflation of 14.3 percent in October. Data published by lawmakers in Argentina’s Congress and compiled from private estimates put it at 25.01 percent.

Todesca said many INDEC officials had resigned in the wake of the election last month that brought conservative Macri to power, ending 12 years of leftist Peronist rule.

Staff hires in recent years had not been meritocratic, he said, which was another issue he would tackle. Some employees had been taken on for political reasons.

“We want to create a new INDEC,” he said, saying it would conduct economic studies based on its statistics, like it had done in the past. “(It) will have the character of an autonomous organism.”

“We hope that within three or four months we will have a finished project,” he said.

Todesca said he would endeavor in the coming days to give a time frame for when INDEC could once more produce reliable inflation data, once he had gone through the data bases.

The International Monetary Fund censured Argentina in 2013 for failing to improve its inflation and gross domestic product figures, putting the country at risk of official sanctions that could have barred it from voting on IMF policies and from accessing financing.

In June, it said the country had failed to take sufficient steps to bring the quality of its statistics in line with global standards.

Back to contents

By Gabriel Burin
December 14, 2015

Argentina’s newly-elected liberal government is working around the clock to overhaul the country’s foreign exchange system. The administration has little margin for error but a positive view about Argentina’s outlook still prevails.

Here are some issues to watch this week and looking into 2016:

* Central bank running low on reserves. What is left of the depleted international reserve stock is draining quickly, despite official controls. There is only about $25 billion left in the central bank’s reserves, and much of that is invested in illiquid assets. The sorry state of the central bank’s balance sheet is in part due to years of deficit monetization under former President Cristina Fernandez.

* Devaluation in the offing. A key reason behind the current bleed of dollars is a crawling peg scheme fixing the peso at a strong rate close to 10 per U.S. unit. President Mauricio Macri, who was sworn in last week, is widely expected to float the local currency soon.

* In search of recapitalization. To avert a speculative attack following the currency devaluation, incoming Finance Minister Alfonso Prat-Gay is seeking to prop up the central bank’s position through special financing arrangements with global banks and grains exporters, Reuters reported. Argentina could tap more than $10 billion right at the start.

* Meeting holdouts. Argentina’s deal with the banks, however, requires a good amount of legal small print work to circumvent potential seizure from bondholders holding $10 billion in judgments against the country. Macri’s team will formally introduce itself to the New York court in charge of the case this week.

* Inflation spike. Expectations of an imminent devaluation have resulted in constant price mark-up at stores. The weekly inflation rate picked up to 1.2 percent in early December, the highest since the last devaluation at the start of 2014, according to Elypsis, a local research firm.

* Tough year ahead. The prospect of record growth in consumer prices in 2016 adds to a stagnant economy to paint a bleak picture. This is compounded by a host of much anticipated problems, such as the specter of power blackouts due to years of lack of investment in the sector.

* High hopes. Local markets are pricing in that Macri will succeed in switching to a business-oriented model. Many middle-class Argentines are optimistic too: “We are all tuned in to see if he is able to create a predictable economic environment”, said Daniel Folatelli, a senior programmer at IBM in Buenos Aires.

Back to contents

By Jorge Otaola
14 December 2015

BUENOS AIRES, Dec 14 (Reuters) – Argentina’s central bank is working against the clock to push through a devaluation this week, a senior bank official said on Monday, although it will not allow the exchange rate to weaken to more than 15 pesos per U.S. dollar.

Mauricio Macri, a centre-right advocate of free markets, took office last week as president, ending 12 years of Peronist rule. Macri has vowed to open up the economy and reduce state interventionism, including propping up the peso.

According to the official exchange rate, one U.S. dollar is worth 9.785 Argentine pesos, whereas on the black market, it is worth 14.69 pesos. Most of the country’s transactions take place between the official and black market rate.

Macri has said he wants the two rates to converge. His critics fear that a sharp devaluation of the official rate will send inflation, which private economists already estimate at around 25 percent, soaring further.

“We are working hard, we want to bring about change as soon as possible but without committing errors, and that is why the implementation (of this policy change) should come this week,” the official said, noting however that all policy decisions were still in flux.

“We will keep the managed floating exchange rate with an upper limit around 15 pesos per dollar.”

Local market traders are already factoring in a devaluation this week.

The official said the bank expected the devaluation to prompt grains exporters to sell around $3 billion of goods by the end of the year, resulting in an inflow of dollars.

If a deal in negotiation with Wall Street banks for a credit line of up to $7 billion also comes off, Argentina should see its low foreign reserves considerably bolstered, the official said.

That in turn should enable the government to lift capital controls, freeing up hard currency for importers and savers. This will likely happen gradually, however.

The central bank’s reserves are currently just below $25 billion, although private analysts estimate net reserves are just a fraction of the gross figure.

Back to contents

By Ryan Dube
14 December 2015

BUENOS AIRES–Argentine President Mauricio Macri on Monday eliminated export taxes on beef, corn and other farm products, a move that could dramatically boost the country’s agricultural output.

Standing in front of a row of green corn stalks at a farm a few hours northwest of this capital, Mr. Macri, who was sworn into office last week, fulfilled one of his top campaign promises by ending the taxes.

“We can double food production in Argentina,” Mr. Macri told a gathering of farmers. “Let’s produce more. There are no excuses now.”

Argentina produces around 100 million tons of grain and soybeans annually, making it one of the world’s leading farm exporters.

Eliminating the taxes, which currently range from 15% to 23%, could help boost production to 180 million tons by 2025, says Ivan Ordoñez, an analyst at I+E Consultores who co-wrote a book on Argentina’s agribusiness potential.

“This is very important. It’s a diametrical change in the way the public sector regulates the agribusiness,” Mr. Ordoñez said. “We’re going to become more competitive and recover a lot of investment.”

The taxes–especially a 35% tax on soybeans–have been a central part of Argentina’s economic policy for more than a decade. Mr. Macri said he would cut that tax to 30% and reduce it an additional five points annually in coming years.

In a separate speech later Monday to industrialists, he also said he would eliminate export taxes on manufactured goods.

Former President Cristina Kirchner used the agricultural taxes to fund ambitious social programs and redistribute wealth, and often said farmers critical of taxes were “oligarchs” who had no interest in poor Argentines.

In 2008, when the government tried putting a sliding-scale tax on soybeans exports, farmers shut down roads and bridges nationwide, blocking the shipment of grains and beef. Mrs. Kirchner called them “coup-mongers.”

Mr. Macri has vowed to expand the social programs, but said that taxing exports stunts economic growth by limiting farm output. Mr. Ordoñez says the taxes, along with an earlier ban on beef and wheat exports, cost Argentina around $40 billion in lost production.

Once famous world-wide for its tenderloins, Argentina saw its beef output fall behind that of its much smaller neighbors, Paraguay and Uruguay, as ranchers here ditched cattle in favor of more lucrative crops like soybeans.

The number of cattle has fallen by around 10 million and 138 meatpacking plants went out of business, according to Argentina’s Rural Society.

Those trends could reverse as farmers plant more corn and wheat and start raising cattle again.

Mr. Macri had a more pressing reason to eliminate the taxes: a desperate need to obtain U.S. dollars. Amid rising demand for dollars, the stock of greenbacks at Argentina’s central bank has dropped to less than $25 billion from more than $52 billion in 2011.

The lack of dollars, which are needed to make debt payments and pay for imports, has choked the economy and forced the Mr. Macri administration to seek fresh financing.

The government hopes that removing the taxes will encourage farmers and agribusiness companies to quickly sell billions of dollars worth of grain as exports.

Last month, Argentina’s tax collection agency estimated that Argentines had been hoarding around $13 billion in farm goods, mostly in expectations that the government would devalue the currency.

When companies export grains, dollars from the sales go to the central bank, which provides sellers with pesos at the official exchange rate, currently about 9.8 to the dollar. Economists expect that rate to slide to closer to 15.

“Cutting taxes gives you incentive to sell, but a lot of people will wait until it is clear what the exchange rate will be,” said Andres Rosengberg, 42, who manages a farm in the province of Buenos Aires.

The tax cuts are part of a broader plan by the Macri administration to obtain more than $5 billion in fresh financing from international banks to bolster the central bank’s foreign currency reserves. The government also plans to slash subsidies for gas and electricity, which would save billions in state spending.

Mr. Rosengberg says he stopped raising cattle about 10 years ago after the taxes made it too costly. He may now reconsider producing beef again.

“This improves the outlook for everyone,” he said on Monday. “Surely production will rise. Macri kept his word, giving him credibility. I’m pleased about this.”

Back to contents

By Ian Shepherdson
Dec 14, 2015

If Argentina’s new center-right President, Mauricio Macri, lives up to his pre-election promises, the second-largest economy in South America, will revert to orthodoxy and move from chaos to a sustainable path. Mr. Macri’s victory marked the end of the 12-year Kirchner era, characterized by wild inflation, huge public deficits and unsustainable subsidies. The former mayor of Buenos Aires decisively defeated Daniel Scioli of the ruling Front for Victory coalition but now faces a huge task to turn the economy around. I am hopeful that recovery will come, but the road will be long and very bumpy. Investors are unforgiving to emerging economies when the Fed is raising U.S. interest rates, so the backdrop for Mr. Macri’s reforms is challenging.

The new President has vowed to resolve the long-standing problems of Argentina’s battle with hedge fund creditors, and to reduce public service subsidies, trade barriers, and currency controls. He has also to limit the central bank’s mandate, in order to prevent money-printing to finance the budget deficit, and to publish reliable economic statistics.

These changes should in time allow Argentina to regain access to international markets, reintegrating the economy to the rest of the financial world and boosting business confidence, investment, and economic growth. This would help limit the country’s reliance on foreign exchange reserves— which are at a nine-year low—to finance the biggest deficit in more than 30 years, breaking the pernicious monetary cycle that feeds one of the highest inflation rates in the world. More immediately, though, the impact of low commodity prices and weakness in Brazil and China—Argentina’s main trading partners—will be a serious drag on the economy in the near future. Wisely, Mr. Macri has vowed to strengthen bilateral trade relations with the United States, and the Pacific Alliance countries: Mexico, Colombia, Chile and Peru.

Both monetary and fiscal policy have to be tightened substantially, in order to tackle the double-digit inflation rate. And the overvalued currency needs to be 30-to-40% lower against the USD, an adjustment which will hurt, but is essential if Argentina is to attract investment and restore trade competitiveness. I expect Mr. Macro quickly to devalue the peso and initiate the process of unifying the multiple exchange rates currently in the market. This realignment will cause short-term pain, especially to import-dependent industries, and will trigger a jump in inflation—mirroring the impact of Brazil’s cuts in energy subsidies this year—but in the end, the benefits coming from higher capital inflows and long-term investment will be worth it.

Lack of support for Mr. Macri in the Senate will make his job more difficult, hampering or delaying reforms, and the necessary tightening of economic policy likely will induce a brief recession. But the contraction will come as no surprise after more than a decade of economic imbalances and mismanagement. If all goes well, the economy should in time be able to grow in line with the regional average, around 3-to-4%.

In the meantime, Mr. Macri cannot expect to be universally popular, especially after he scales back subsidies, especially in the energy and transport sectors, cuts other government spending and raises taxes. But a clear and transparent message to the population, and a gradual improvement in economic conditions, should limit the damage. Political risk will peak in 2017 with the mid-term congressional elections, but the new government should by then have pushed through the bulk of the necessary reforms, probably by attracting the backing of non-Peronist legislators loyal to Sergio Massa, who was third in the first round of the presidential election and won about 21% of the votes cast in the primary.

The election of Mr. Macri marks the start of real political change in South American. Argentina’s shift to the center-right comes at a critical moment as populist governments elsewhere, especially in Brazil, authoritarian Venezuela, Bolivia and Ecuador, are suffering economic crises and plunging popularity. Argentina’s new President has even said he will seek to expel Venezuela from Mercosur—the South American trade bloc—for human rights abuses. Mr. Macri wants to distance Argentina from the populism elsewhere, especially in Venezuela, thereby improving investors’ perceptions of the continent as a whole, at a critical time for all emerging markets. For the sake of ordinary people across South America, I hope he is successful.

Back to contents

By Nicolas Rodriguez-Brizuela
December 14, 2015

The country is defined by a century of Populism.

As Mauricio Macri was sworn in as president of Argentina this week, he is hoping to make true his promises of turning the country’s economy around. It’s been over 100 years since Argentina elected a president outside of the populist options of Peronists or Civic-Radicals. His election is a groundbreaking event not just for Argentina, but also for Latin America and even for the United States.

Since 1916, all Argentine presidents have either been from the two major Parties (Radical Civic Union or Peronists) or the result of a military coup-d’état. In that sense, Macri’s election is an attainment of historical proportions—breaking a century-long pre-eminence of these parties. For those unfamiliar with Argentine politics, both parties have a contentious relationship with wealth and wealth creation, have a populist policy bias, embrace class warfare rhetoric, and abominate and repress economic differences. So the fact that the majority of Argentinians have chosen a white, blue-eyed and several times a millionaire for president seems to challenge prevailing sociological findings of how Argentinians choose their leadership.

Moreover, his election is relevant for Latin America. Over the last decade, the region’s leadership leaned towards different renderings of populism — from Venezuela’s regime to Uruguay’s social-democratic center-to-left administration. Macri has said that Venezuela’s regime is violating human rights while other Latin American leaders have remained silent about the repressive nature against dissenters of the Chavez-Maduro regime. What’s more, Macri’s election may well be relevant to the U.S. and the developed world. Since Argentina’s default in 2002 and its subsequent disorderly exit from dollar currency peg, it’s relationship with Western nations have been contentious. Macri’s election could pave the way for more economic cooperation with developed nations.

Nonetheless, his election is also relevant for Latin America. Macri is already making strides on regional affairs. Over the last decade, Latin American leadership leaned towards different renderings of populism from Venezuela’s regime, with a totalitarian bent, to Uruguay’s social-democratic center-to-left administration. In Macri’s speech following the first round of elections, he made a clear statement that Venezuela’s regime is violating human rights by incarcerating opposition leaders like Leopoldo López, who was prosecuted on charges of a dubious nature. This was not just an opinion; rather a commitment to Lilian Tintori (wife of Leopoldo López) who was on stage when Macri announced to his followers the result of the election.

But the true test of Macri’s presidency will be breaking Argentina away from a century of populism. Consecutive populist administrations have produced an economic organization marred with red tape, price interference, obstructive regulations and arbitrary and corrupt regulators that have deterred investment and progress. Populism is like a disease. Its rhetoric is like a bewitching song, enchanting and alluring a population with simple, yet powerful Manichean orderings. When things don’t go as expected (as they often do), foreign foes or domestic dissidents are to blame, and the cycle is reinforced with more economic and financial repression, more belligerent rhetoric and leanings towards totalitarian control. It is a hard cycle to break.

But Argentina was not always like this. It was once a fairly well-organized country that competed with the U.S. as a promising destination for immigrants. By 1914, it was the 10th largest economy in the world — with income per capita and life expectancy exceeding that of most European countries. Between 1900 and 1916, Argentina tripled its industrial production, doubling the number of industrial ventures. Standard of living also improved, with 40% of the population in the middle class. Such was Argentina’s break-neck progress that in Paris there was a popular expression “Riche comme un Argentin,” which translates to “wealthy like an Argentinian.” Even in the 1920’s, Argentina’s cost of credit was marginally higher than that of the United Kingdom, and its stock market was liquid and deep with return patterns that suggested the country was well intertwined with the global flow of funds and economic cycles.

Between 1870 and 1930, Argentina’s economy grew at 6% annually, the fastest in the world. So much immigration flew to the country that by 1914, half of Buenos Aires’ population was foreign born. The country’s education system at the turn of the century had achieved an astonishing reduction in illiteracy rates and was admired and copied throughout the region. Its subsequent decline has been subject of many analyses and interpretations and has puzzled economists and scholars for many years.

For the purpose of this article, we can take reputed scholars’ view that Argentina’s decline can be traced back to the rise to power of today’s majority parties. In 1916, Hipólito Yrigoyen from the Radical Civic Union party was elected, marking the dawn of a century-long cycle of “populist democracy” (charismatic unobstructed leadership as opposed to democratic pluralism) often interrupted with nationalist-conservative repressive military regimes. Argentina’s ensuing political instability went hand-in-hand with incremental government interference with markets and prices (which none of these political actors trusted). Consequently, property rights were undermined and inflation was introduced to finance excessive public expenditures. This economic mismanagement was accurately characterized as “capitalism without markets and socialism without a plan.”

As he sets to take office, President Macri’s challenges seem overwhelming. Argentina is currently in default with creditors for the second time in 13 years after reneging a New York Court order to pay holdouts. It has the third highest inflation rate in the world. The country’s fiscal deficit is similar to those of the last two crises: 1989-1990 hyper-inflation and 2001-2002 deflation bank run and disorderly exit of the currency board. This fiscal deficit is at a time of record tax burden that represents 46% of GDP by some estimates. The tailwind of commodity prices has long subsided and the era of cheap capital is set to end sooner rather than later. He also leads a heterogeneous coalition and Peronism holds simple majority in Congress. Last, but not least, the rule of law has been replaced by the will of the ruling majority.

Yet a more crucial development will be played by Macri if his moderate-realistic speech can win the hearts and minds of the Argentinians and inoculate them against the populist virus. It will have to be a tricky balancing act—while pursuing fiscal and monetary adjustment and reorganizing the economy under market incentives—to convince its people that there are gains to be achieved in the long run. For most Argentinians, it is self-evident that only governments can obtain social consent for transformative endeavors, not the private sector; and that market-based economic organization is prone to abuses thus requiring a vigilant regulatory body to intrude for the greater good.

Only time will tell if Macri is able to successfully overcome those obstacles. But if he does, we may well see Argentina, once again, as a beacon of hope and admiration in the region of how to achieve progress and economic development.

By Agustin Rossi
14 December 2015

Government speakers never stopped maintaining a harsh and confrontational style that proved too unseasonable in this election. Macri’s slim victory should force him to avoid backtracking kirchnerist popular policies.

Many explanations have been offered on the surprising defeat of the ruling Frente Para la Victoria (FpV, a left-of-center coalition founded by Néstor and Cristina Kirchner, with roots in the political movement founded by Juan Perón) in the second-round of the Argentine 2015 Presidential elections to the Cambiemos coalition (a right-wing coalition headed by the former major of the City of Buenos Aires Mauricio Macri, heir of the Macri fortune). I consider all those explanations insufficient and argue that the reason why FpV lost the elections is because it failed to understand that the Argentine society was tired of the harsh and confrontational tone that characterized FpV’s Governments, and demanded a change in the tone and style of its Executive.

Cambiemos unexpected electoral promise of maintaining the key social and economic policies of the last decade demonstrates that the people were generally satisfied with the transformations introduced by Néstor and Cristina Kirchner’s administrations. Consequently, in spite having won the election, Cambiemos has not won a mandate for backtracking the fundamental economic and social reforms of the Kirchners’ years, much criticized and opposed by Macri in the last ten years.

There are eight main explanations of why FpV lost or why Cambiemos won. First is that people got tired of Cristina Kirchner herself. Second, that people voted against the suspected corruption cases that affect the FpV. Third, that the responsible of the defeat of the FpV was the economy. Fourth, that it was a victory of the anti-FpV media conglomerates. Fifth, that the primaries left the FpV internally divided. Sixth, that FpV’s candidate Daniel Scioli, did not truly represent the essence of FpV’s project. Seventh, that Cambiemos was the natural change the people wanted. And eighth that, simply, voters were not in favour of the central policies of the Kirchners’ government and wanted a change.

However, all those arguments have fundamental limitations. First, Cristina Fernandez leaves power with more than 50% of positive image, being in comparative terms the most popular outgoing President, only behind her late husband Néstor Kirchner. Second, corruption allegations affected Cambiemos and FpV in equal measure, having resigned Cambiemos head candidate to the federal lower house for the Province of Buenos Aires in the middle of the campaign because of a corruption scandal. Third, 65% of Argentines consider their personal economic expectations as positive, and unemployment and poverty are in historical lows.

Fourth, the unchallenged leadership of Cristina Kirchner inside FpV did not allow for confrontation inside the organization that runs fully united at the federal level –unlike Cambiemos, that had competitive primaries. Fifth, in front of the private media conglomerate, FpV counted with the support of its own allied media and journalists, including the public channels and the monopoly of the TV broadcasting of the hugely popular national football league –resources that the other progressive governments of the region can only dream of.

Sixth, Daniel Scioli, vice-president of Néstor Kirchner and twice Governor of the Province of Buenos Aires under the Presidency of Cristina Kirchner, is among the few politicians of national visibility that have been with the FpV’s project since Néstor Kirchner moved from being Governor of Santa Cruz, both the biggest province and the least populated, to being President of the nation in 2003. Seventh, Mauricio Macri’s PRO, the central party in the Cambiemos coalition, barely held in the 2015 second round local elections its fort in the Government of the City of Buenos Aires, and before 2015 Macri’s political influence had never managed to expand outside Argentina’s capital and richest city. Finally, Mauricio Macri himself made a kirchnerista u-turn after the presidential primaries, promising to maintain the central social and economic policies in case of being elected to the highest national office, and even inaugurating the first monument to Juan Perón en City of Buenos Aires (traditionally an anti-peronista feud).

The main reason why the progressive FpV loses the 2015 elections for less than 700.000 votes is for not being able or willing to offer a change in the tone and style in public discourse that Argentine society demanded. Curiously and fatally, Scioli is unable to translate to FpV’s campaign his biggest political capital: his across-the-board acknowledged capacity of dialogue and cooperation. Thus, despite the fact Scioli remained as the least confrontational figure inside the FpV, his trademarked tone and style were suffocated by a multitude of FpV’s leadership voices that maintained the hard confrontational tone and style that has characterized FpV’s Governments. Those tone and styles, that proved to be a winning recipe in the last three Presidential elections, were not what most Argentines wanted to hear in 2015, feeling far away from the economic, social and political crisis that affected Argentina in 2001. The harsh and confrontational tone and style of Néstor and Cristina Kirchner was useful for accomplishing the difficult reforms that turned Argentina around since 2001, but became a liability once Argentines forgot that, not so long ago, they were on the hedge of a cliff.

After almost losing its bulwark in the City of Buenos Aires against one of the former Finance Ministers of Cristina Kirchner turned into an independent candidate now appointed Ambassador to the United States, Martín Losteau, Cambiemos started embracing the fundamental pillars of the FpV’s social and economic model, promising to maintain the welfare plans popular in the lower and lower-middle classes and to keep in public-hands the nationalized companies (such as the national airline or the national oil company). Skilfully, Macri removed from the public spotlight those politicians and advisors of Cambiemos that could evidence the various contradictions of that rhetorical turn. Finally, Macri started a campaign promising a Government dialogue and mutual understanding among Argentines that would end the confrontational style of the outgoing administration. It is worth noting that the cabinet announced by Macri since being elected President, full of those silenced speakers, demonstrates that the electoral promises of Cambiemos regarding the economic and social model will remain that: electoral and promises. For example, for the first time in more than a decade, the new Finance Minister proudly announced that the United States Treasury has been informed about the President’s economic plan before the Argentine Congress.

The electoral offers of FpV and Cambiemos show that most voters wanted the continuity of the fundamental social and economic policies of the FpV’s governments. This coincidence in the electoral platforms is why FpV stumbled in the electoral campaign. FpV did not fully understand the implications of the kirchernista turn of Cambiemos and opted for maintaining a discussion on a front were there was no longer a rhetorical opposition, the one of the economic and social model.

As a consequence, the second mistake of the FpV was not appreciating the implications of the new tone offered by Cambiemos in the campaign. Macri, whom until a couple of years ago had only 13% of positive image at the national level and who had in 2010, publicly joked about the necessity of throwing former President Kirchner out of a train window in order to win the 2011 elections, proposed that what was at stake in the 2015 Presidential elections was the tone and style Argentine’s wanted for their Government and not the social and economic gains of the last decade that Argentines want to preserve.

Macri proposed dialogue, mutual understanding and an end to confrontation. Ironically, among the possible FpV candidates, Scioli was the one who better represented dialogue and understanding, and the less confrontational. But he was incapable, or unwilling, to convey his tone and style to FpV’s campaign.

Because of lack of leadership, strategic decisions, or error, Scioli never managed to impose his tone and style to FpV’s campaign. The traditional speakers of Cristina Kirchner’s Government never stopped maintaining a harsh and confrontational style that proved too unseasonable in this election. That is why FpV lost the Presidential election.

Two conclusions follow. First, that maintaining the harsh and conflictive tone will only help FpV to retain its most mobilized base but keep the moderates away. Second, that Macri won a mandate promising not to challenge the policies which, for ten years, he argued had to be changed, and that his legitimacy for further reforms is, thus, limited.

Back to contents

By Matt O’Brien
15 December 2015

There has been a political earthquake in South America, and it started in China.

In just the last few weeks, Argentina and Venezuela’s left-wing governments have lost at the polls, and Brazil’s is looking wobbly. That’s what happens when the commodity boom that had fueled your social spending turns to bust – due, in large part, to China’s slowdown. The question, though, is whether the continent’s right-of-center parties can do any better.

Well, at least in Argentina and Venezuela, they can’t help but to. Both those countries had embraced what economists Rudi Dornbusch and Sebastian Edwards called “macroeconomic populism,” basically the belief that since printing money and running deficits are sometimes good ideas, they always are. That has turned what would have already been tough times into borderline catastrophic ones.

Why would they do that? The question answers itself: Because it had worked before. Take Argentina. In the 1990s, it became much more market-oriented and cured its congenital inflation by pegging its peso to the dollar. But this stability came at the cost of giving up its ability to fight recessions by, yes, printing money or running big deficits. So when its economy did get hit by a big shock in 1998, there was nothing its government could do about it. Things got bad enough that investors started pulling their money out of the country in case it ditched its dollar peg, which, in turn, made it more likely to do so, since the only alternative was to raise rates to try to persuade people to keep their money there – making its recession even worse in the process.

Argentina actually stuck it out for a few years as it spiraled down into a depression-level slump, but, after a bank run destroyed what little was left of its economy, it had no choice but to default on its debt and devalue its currency. At which point it recovered fast.

It was a slightly different story in Venezuela. It never really “needed” populism like Argentina did. Instead, the Chà¡vez regime had the, well, revolutionary idea of taking the country’s oil money – it has the largest reserves in the world – and giving it to the poor. And for a while it worked. As the Center for Economic and Policy Research points out, Venezuela’s poverty rate actually fell by 40 percent between the time Chà¡vez took power in 1999 and 2011.

The only problem is you need to actually have an economy to make this work, and Venezuela doesn’t anymore. That’s because the Chà¡vez regime wanted to control not only the oil money but rather all the money in the economy. It tried to do that first by telling businesses how much they were allowed to charge and second by telling businesses which of them were allowed to even restock their shelves. That last part was the result of the Byzantine currency system the government set up, in which certain companies were given cheap dollars that they were then supposed to use to buy the imports they needed. By and large, though, they didn’t, since they could make more money reselling their dollars in the black currency market than they could reselling their imports to customers. And that’s why Venezuela has shortages of basics such as food and even toilet paper.

Now, Venezuela’s government could keep this dysfunction to at least a livable level as long as it had enough oil money to throw at the problems it was creating. But it doesn’t have that anymore, either. It mismanaged the state-owned oil company, which had previously enjoyed a fair amount of autonomy. The result was that, by 2013, Venezuela’s oil production was about 25 percent lower than it was in 1999. But far worse has been how far oil prices have fallen the past year. Venezuela depends on oil revenue for 95 percent of its exports and can’t get the dollars it needs to buy much of anything with oil at less than $40 a barrel.

Nor can the government afford to pay out all the benefits it has promised, not without just printing the money – which, of course, is exactly what it has done. That has turned into at least 68 percent inflation – that was how high it was when the government stopped reporting the figures a year ago – and, according to the International Monetary Fund, as high as 204 percent next year. And on top of that, the economy is probably shrinking something like 10 percent right now. It’s no surprise, then, that Venezuela’s government lost the latest legislative elections despite the fact that it controls the media, has jailed opposition leaders and even tried to trick voters by putting a fake party on the ballot that sounded just like its opponent’s name.

Then there is Brazil. It has been comparatively well managed but still finds itself staring into an economic abyss. Now, like Venezuela, it had fought persistent poverty by just giving people money, but, unlike Venezuela, it did that in the context of market-friendly policies that kept its economy growing – at least until now. It is facing not only the global commodities bust but also a wider credit bust at home. That has made Brazil’s economy contract 4.5 percent the past year, its worst performance since the 1930s, at the same time that its currency has plummeted by 50 percent against the dollar as money has now been moving out of the country. That, in turn, has left it with 10 percent inflation even though unemployment is spiking. That would be enough to sink even the most popular politician, but President Dilma Rousseff is far from that.

In other words, a butterfly flapped its wings in China and caused a political hurricane in South America. Between 2000 and 2014, China’s demand for raw materials of every kind was so great that prices soared and the coffers of commodity-based economies did, too. That gave South American governments the money they needed to redistribute to their poor, and they did. But a combination of bad luck and bad management has left them without much margin for error today – which they need now that commodity prices have come down as a result of China slowing down. In a global economy, politics is, too.

Back to contents



Introduce tus datos o haz clic en un icono para iniciar sesión:

Logo de

Estás comentando usando tu cuenta de Cerrar sesión /  Cambiar )

Google+ photo

Estás comentando usando tu cuenta de Google+. Cerrar sesión /  Cambiar )

Imagen de Twitter

Estás comentando usando tu cuenta de Twitter. Cerrar sesión /  Cambiar )

Foto de Facebook

Estás comentando usando tu cuenta de Facebook. Cerrar sesión /  Cambiar )


Conectando a %s

A %d blogueros les gusta esto: