Having dedicated the first half of his term to a successfully maintained and electorally vindicated consolidation of a fiscal surplus, President Javier Milei sees a prime challenge of the second half as placing Argentina on a sustained growth path with much in his favour – not only his recent electoral mandate easing consensus but also a vapid opposition continually eroded by an ongoing corruption mega-trial, the financial backing of a superpower with a currency swap of US$20 billion in the bag (even if a further package of US$20 billion seems to have evaporated) and a regional ideological tide in his favour giving every indication of being confirmed in next month’s run-off on the other side of the Andes.
The first post-electoral growth figure to be published was the 0.5 percent growth figure posted by INDEC national statistics bureau last Tuesday for the tremendously complex pre-electoral third quarter of this year, giving an annual growth rate of five percent. Foreign Minister Pablo Quirno was quick to boast to the outside world that Argentina had achieved the apparently impossible by growing amid austerity but most of that austerity was imposed last year when the economy contracted by 1.7 percent. Furthermore, the calculation of that 0.5 percent was a less than spontaneous process. July was measured as minus 0.1 percent, only to be to be “revised” to plus 0.1 percent, August registered growth of 0.3 percent which a “correction” bumped upwards to 0.7 percent and September was also positive – Argentina thus avoided falling technically into recession, which is measured as two consecutive negative quarters. It has yet to be shown that these corrections obeyed political rather than technical motives but for the first time in almost a decade (since Mauricio Macri named the late Jorge Todesca to head INDEC upon taking office in late 2015 with Marco Lavagna maintaining a laudable continuity in both the Frente de Todos and current administrations), a suspicion of fudging the figures arises.
The challenge of sustained growth via making the real economy more competitive with vastly improved productivity levels is presented as a question of structural labour, tax and pension reforms but there are more immediate problems. First and foremost, an unconvincing monetary policy incapable of accumulating Central Bank reserves, as insistently demanded by the International Monetary Fund (IMF) along with most economists in order to reassure creditors and bring down a country risk still stuck above 600 points despite the electoral triumph. A monetary policy which can only be maintained via continued ‘cepo’ currency and capital controls (relaxed only to allow private individuals to travel abroad and save) while running on empty in terms of international reserves, a hole only filled by constant injections in doses of approximately US$20 billion – last year’s tax whitewash and a trade surplus of almost that sum, last April’s IMF loan and the recent currency swap, all of which is apparently insufficient with the further package on that scale – and prohibitive interest rates when those fixes are lacking, as we saw in the third quarter.
Those interest rates evidently took their toll because today there are more companies requesting the Argentine equivalent of Chapter Eleven than at any time since the economic crisis dooming the Macri administration in 2019. Industrial idle capacity was measured at 38.9 percent in September, barely above the 39.2 percent of five Septembers previously when the economy was in total lockdown due to the coronavirus pandemic. That annual figure of five percent growth (in part recouping last year’s contraction) is thus patchy at best, spurred by a boom in a few sectors like energy, mining and farming while manufacturing industry is still almost 10 percent below 2023 levels and construction over 20 percent – the latter slump not only costs jobs but obstructs modernisation with the ban on public works (fed ammunition by the ‘Cuadernos’ corruption trial) giving priority to the obsession with fiscal surplus over the urgent need to update infrastructure.
The government is counting on the aversion to Kirchnerism so clearly reflected in last month’s midterms giving it the broad consensus for its reforms but their drive might not only face Kirchnerite obstructionism, even if the latter has bigger parliamentary numbers than the rest of the opposition. With Milei’s idol Donald Trump setting such a strident example of protectionism to the rest of the world, such respected establishment voices as Paolo Rocca are calling for an industrial policy beyond the reforms. When monetary policy is shaky while the real economy is ailing, there is a need for debate.
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