A dangerous run on the peso and a lack of finance are again bringing the country over the brink.
Almost 30 months after taking office, the country found itself in a desolate economy, a faltering peso run and a lack of reserves in the central bank’s coffers. The underlying problem, as always, was a lack of confidence in the government’s ability to formulate and implement a credible economic plan, especially at a moment of global tension that inevitably affected Argentina. When there was no return, then-President Mauricio Macri announced via television commentary that he had instructed Economy Minister Nicolas Dujovne to request an emergency bailout from the International Monetary Fund, which is chaired by Christine Lagarde. Macri’s presidency saw a nation on high alert as the value of the peso continued to plummet and a series of officials running key economic institutions instituted emergency measures that allowed the government to end its constitutional mandate in flames. Admittedly, the first non-Peronists since the return of democracy in 1983.
That was then. Incidentally, President Alberto Fernández was hit by a crippling run on the peso that spanned several weeks into the 30th month of his presidency as a tired economic model failed to inspire confidence and central bank reserves. failed. And it comes at a time when a global reassessment of risks threatens to push advanced economies – and by extension the rest of the world – into recessionary territory, complete with high inflation and intense geopolitical risks, including the Russian invasion of Ukraine. Ongoing wars are also included. , Argentina faces an incredible opportunity to take advantage of its natural resources, yet record high agricultural exports have not translated into a growing economy as investment in industrial sectors recovers and a shortage of dollars for imports is stifled amid rapid inflation destroys the purchasing power of employees. The question on everyone’s mind these days – including Vice President and main opponent Cristina Fernández de Kirchner – is whether President Alberto Fernández will pull through, or whether the crisis will trigger some sort of institutional crisis that will prompt him to call snap elections or steps aside. forces it. ,
At the central bank, Governor Miguel Angel Paes has an early answer. Shortly after new and tighter restrictions were imposed on the currency, Paes pointed out that current market tensions should be resolved by October, when the brunt of cold winter weather will be behind us and energy demand will fall. Just a little while, three months away! Pace’s explanation is that the war in Ukraine caused energy imports from $200-$900 million to $1.6 billion in May and more than $2 billion in June. “Except for energy imports,” he told Jorge Fontavecchia on his daily radio show. Fashion Fontavecchia,[Imports] are in the order of $6 billion [per month]That translates to $72 billion a year, compared to exports that are over $80 billion and could reach $90 billion, a level that would support stability in FX markets.” The exit from bond markets pointed pointed out that the recent bond auction, where Guzmán (before his exit) rolled over debt and even received net funding in pesos, was a “positive result”. Since the imposition of this round of sanctions, the peso central bank had raised about $1 billion in reserves from market operations, much of which has been burned since the heat of a severe run on the peso.
The extreme practicality of pesos stems from their ability to contain the dollar-peso exchange rate through increasingly restrictive measures, which by definition would stifle economic growth. As detailed by economist Juliette Colella, Guzmán has indeed been successful in its last few bond auctions, but at a higher price. Increasing the interest rate paid to investors while shortening the maturity of the instruments offered to the former Commerce Department, as well as begging and forcing both private banks and public institutions to absorb more and more peso-denominated paper, was forced to do so. This happened along with the increase in money printing, which is beginning to worry the IMF. In his last quarterly report he pointed to “more disciplined cost management”. [is needed] for the second half of 2022,” which includes “tightening spending on goods and services, transportation subsidies, and voluntary transfers to provinces and public companies,” while calling for “prudent payroll administration” and lower pension spending for federal employees. The current formula is unless the Fernández-Fernández (and Massa) government intervenes sensibly, as expected. A challenge for the newly appointed Economics Minister Silvina Batakis, who is already on the way. Sergio is keen to replace Massa.
All questions are linked. While Paes was right when he said that higher energy demand would fall, he did not embrace the political class’s inability to effectively build a major infrastructure project that would aggressively reduce foreign energy demand, and thus hard currency. Needed: The gas pipeline stretches from Vaca Muerta to Buenos Aires. This failure extends to all of Cristina-Mauricio-Alberto’s administrations. There is also an impossible energy policy that Guzmán has failed to uncover, in large part due to opposition from the political organization La Campora, which is responding to Cristina. Will Batakis or his successor be given political leeway to succeed? Big imports, private sector debt and increased tourism spending are all contributing to the strain on the central bank’s limited reserves to keep the economy afloat. And one should not overlook the international context, where there are large-scale disruptions to global supply chains outside of wars, until recently detailed monetary policies that undoubtedly exacerbate inflationary pressures. Some, like doomsday economist Nouriel Roubini, are already predicting a massive inflationary crisis that could rival the global financial crisis of 2007-2008.
All of this, however, pales in comparison to Argentina’s decades-long political collapse, which makes it even more fragile in the face of a critical situation. One of the main protagonists this fall is Cristina Fernández de Kirchner, who, together with Macri, has built a political career based on opposing one another and feeding the polarization of the country. After lashing out at a president, Christina sat down with opposition economist Carlos Melkonian, who drafted a macroeconomic plan that she believes is structured to serve the next president, regardless of his political affiliations. . They were both criticized for holding this meeting, but it’s good news of utter disapproval for someone across the aisle these days. Looking beyond the election calendar, even with Christina and Melkonian playing for themselves, there is an urgent need for confidence to be boosted. In terms of the economy, when it comes to macro numbers, Guzmán may be right, but it’s hard to see how they’ll pan out, albeit narrowly, without gaining credibility, as Macri said. did. Batakis is already failing at this.
This piece was originally published in Buenos Aires timesArgentina’s only English language newspaper.