Winter will be formally ending in the next fortnight, with the change of season already evident in the weather, but springtime for the Argentine economy will take much longer to arrive – months, quarters or even years. Economics has long been dubbed “the gloomy science” but these days the doom and gloom seems more unanimous than ever among the expert opinions – almost the only consolation they offer is that this currency crisis is not as bad as the 2001-2002 meltdown. True enough but the exit strategy is also more elusive today – back in 2002 it was mostly a question of replacing convertibility with the daylight robbery of a mega-devaluation while the revival of idle capacity reversed the unemployment of the Carlos Menem years (although at the expense of productivity, a root curse now).
Turning to the current crisis, the Mauricio Macri administration deserves sympathy because he faces problems shared by no other government in the world. Argentina is a unique case of a market economy where the laws of supply and demand simply do not operate – in other countries both a greater supply of dollars and a higher price will reduce demand but in Argentina both are useless against a perverse psychology, the heritage of several decades of inflation. Macri has already registered remarkable progress against the fiscal deficit but totally in vain, which alone must raise doubts as to whether austerity is the correct path – if US$50 billion from the International Monetary Fund (and the resounding praise of US President Donald Trump) achieve so little against the crisis, what chance even zero deficit? The president might halve his Cabinet but the markets will continue to eye askance a country with 40 percent inflation and 60 percent interest rates. To reverse this, Macri must do everything at once and the mission impossible of correcting relative prices (in the form of ludicrously low utility bills and transport fares) while lowering inflation already rules out any such miracle. In short, the speculative greed and government despair of recent weeks strongly evoke those famous lines of W.B. Yeats : “The best lack all conviction while the worst are full of passionate intensity.”
Yet why abdicate the passionate intensity to the pessimists? That Yeats poem continues: “Surely the Second Coming is at hand” and if we can only turn our eyes away from the green currency, this spring will bring blossoms of other colours, not just the jacaranda. While everybody loses from inflation, there are some clear winners from devaluation on this scale (still comfortably outstripping inflation). If the Greater Buenos Aires industrial belt and the construction industry are the hardest hit by the higher price of their inputs, the beneficiaries of devaluation cover a much bigger percentage of the national territory – both agriculture and tourist attractions can be found in many regions. Most of the attention is now falling on farming (which now faces a new export levy) but Argentina’s budding software industry now becomes extremely competitive. On that front, a Canadian mining company announced this week a half-billion-dollar investment in lithium – a totally safe bet with today’s technology, no matter how unstable the local economy. Thanks to low-cost airlines the aviation revolution is a reality, even if domestic tourism is still slightly short of the 2011 record (which cheated by including daytrippers). And does the optimist really need to do more than utter those two words: Vaca Muerta? The Argentine economy might look like a dead duck now but just wait for the shale from the dead cow.
All doom and gloom but perhaps in retrospect history’s verdict – for the government at least, if not the less welloff members of society – might end up echoing the opening lines of Charles Dickens’ A Tale of Two Cities: “It was the best of times, it was the worst of times.”