Argentina: Orthodox Economic Policies still have no visible results

The Financial Times (FT, through its columnists Benedict Mander, Samantha Pearson and John Paul Rathbone) does not seem to conceal its sympathies for the Mauricio Macri administration, and recently hinted some degree of impatience for the fall of the Dilma Rousseff government.

According to the FT, Argentina is experiencing an “economic recovery” that produces envy and rivalry with Brazil because “it has what many Brazilians want: a reformist government. President Mauricio Macri’s administration, elected four months ago, has begun to revert the economic legacy of Cristina Fernandez, the former populist president”.

The publication particularly highlights a 16.5 billion dollar bond issuing (a form of borrowing currency) as an example of a positive reform carried out by the Argentine government, describing it as “historic”, and arguing the country has turned into “the new favorite among investors. By contrast, neighboring Brazil, yesterday’s favorite, is in recession, with a political crisis and a corruption scandal”.

What the FT does not mention is that this bond issue is part of a pact between the government and the Vulture Funds to pay them $4.653.000.000, equivalent to earnings of between 400% and 1.000% (depending on the title) in favor of such creditors.

Nor does it mention that with this bond issue placement, Argentina’s public debt reaches a stock close to 300 billion dollars and enables new rounds of loans (something sought after and celebrated by Macri and his supporters).

The Argentine economist Julio Gambina has warned that this it will aggravate Argentina’s mortgage, and that “today’s debt will be demanded soon taking away fiscal resources needed to meet food, health, education and energy social rights, among the many unmet needs. The new debt is only one of the sides of adjustment, but the issue is presented as if it were the only solution appealing to the consensus of the entire population”.

Economic rebound of “stagflation”?

The International Monetary Fund (IMF) forecasts that Argentina’s $438 billion economy will grow by 3%, while that of Brazil, with a size of $1.5 trillion, will stagnate next year.

However, Gambina notes that in fact “the Argentinean economic data are worrisome and combines stagnation with rising prices”, because the government’s economic policy pushes towards economic slowdown to lower the inflationary trend, through public sector layoffs, increase in electricity tariffs, austerity measures.

The logic of Energy Minister Juan José Aranguren (former Shell employee), seems to be headed precisely towards that direction when he says that if fuel is expensive, consumers should refrain from buying it.

Aranguren’s logic is consistent with that of the President of the Central Bank of Argentina, Federico Sturzenegger, which is clearly expressed through its orthodox policy of fixing rates at 37.5% in order to attract Investment Funds, Banks and all types of speculators.

According to Gambina, these two state officials are excellent exponents of the current Argentine government ideology, who “do not care about the social consequences if in the end they manage, at any cost, to lower inflation. Unsuccessfully for now, although they hope for inflation to start declining by July, at the expense, of course, of consumption levels”.

Unsuccessfully because according to recent estimates based on reports of the Studies and Training Institute from CTA Autonomous, “over the past year and up until April 2016 inflation is above 40%. Projections for 2016 point in this same direction”, the experts claim.

Thus, with consumption weakened and scarce liquidity, and while the government borrows stratospherically, Gambina observes stagnation in the economy combined with high prices (a situation know in economic jargon as “stagflation”), which will result in “a destructive combo for most people on fixed and low incomes”. 

LEA ESTA NOTA EN ESPAÑOL AQUÍ

Argentina: Políticas económicas ortodoxas aún sin resultados