Friday, July 19, 2024

OP-ED | 15-07-2022 15:00

Plan B or Plan C(FK)?

The more immediate challenge for Silvina Batakis to make it into the next month is the major renewal of peso debt, now only a fortnight away – a hurdle too high for Martín Guzmán.

The surname of the new economy minister at least begins with the right letter but can Silvina Batakis offer a Plan B? Incoming officials always deserve to be given time to prove themselves (even if the classic 100 days no longer seem to be the yardstick in these accelerated times) but is time on her side? In her first week the markets did not seem to reflect the truce patched up within the ruling coalition with surging parallel exchange rates and country risk – a truce which survived last Monday’s ministerial announcements barely deviating from the line of her predecessor Martín Guzmán but greeted with a sullen silence in vice-presidential ranks rather than a fiery counteroffensive.

Batakis left little doubt as to her commitment towards balancing the budget but easier said than done – President Alberto Fernández shares that commitment and the result so far this year has been a 75-percent surge in public spending (87 percent last April), outstripping a rampant inflation. But any progress in reducing the fiscal deficit would ease the pressures for printing money, thus presumably taming inflation and narrowing the exchange rate gap.

Deficit reduction is a medium-term objective with freezing state employment at its unsustainably high levels the main step in that direction – the more immediate challenge for Batakis to make it into the next month is the major renewal of peso debt now only a fortnight away, a hurdle too high for Guzmán since it seems to have triggered his apparently voluntary resignation.​

This hurdle of renewing almost half a trillion pesos worth of bonds was more central to Monday’s announcements than meets the eye. To confront that challenge Batakis lined up two big guns which should be up to the task. Firstly, she merged all the state companies, public trust funds, etc. outside the central administration into a single account whose collective surplus last year was around 664 billion pesos (presumably including state subsidies among company earnings if Aerolíneas Argentinas is part of that combo) – a sum superior to the bonds up for renewal even if it looks like creative accountancy. Secondly, to reassure bondholders she has secured a Central Bank guarantee that it will buy the renewed bonds at face value should they fall below par.

This might well solve one problem at the cost of creating others. Honouring this programme would oblige yet more money to be printed and would swell a dangerously snowballing quasi-fiscal deficit in the Central Bank already stuck with trillions of Leliq bonds. These are problems for the public sector but the private sector would also suffer – both from the probable acceleration of inflation from expanding the money supply and from being crowded out of the credit market by the favoured conditions for Treasury bonds. Yet the problems would not only be economic. If bankers are given higher interest rates for their bond placements and generous guarantees not available to ordinary citizens often on the brink of the poverty line in a volatile economy, the Kirchnerite wing of Frente de Todos might look askance at policies privileging financial speculation as far too similar to the administration which they replaced and the gender of Batakis would not save her from the harassment suffered by Guzmán.

If the immediate priority of Monday’s announcements was bond renewal, they also carry a hidden agenda towards longer-term deficit financing. The unification of state company accounts to assemble a critical mass for that end is one example – another is the revaluation of property assessment with the aim of gouging more revenue at the same tax rates. Among other obstacles this flies in the face of an agricultural sector already on the warpath as from last Wednesday’s farm strike.

The external opposition fuelled by widespread public discontent is clear enough – it remains to be seen how the internal opposition evolves. The Frente de Todos truce extends to the segmentation of public service billing as from yesterday in theory – it remains to be seen if the Kirchnerite reaction to this is acceptance or passive resistance which might later harden. Much will depend on their 2023 presidential candidacy – will Vice-President Cristina Fernández de Kirchner decide that Boris Johnson was wrong when he said upon resigning that no politician is indispensable and feel obliged to run herself or will she come up with a new front man like Interior Minister Eduardo ‘Wado’ de Pedro, recently flirtatious with the business establishment? President Fernández might well end up needing a Plan B beyond Plan Batakis.   ​

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