In contrast to the market maelstrom following the August 11 PASO primaries, the financial week since the long weekend has been one of the calmest of the entire year, strangely enough. A welcome start for the new Finance Minister Hernán Lacunza, even if it ends up being the eye of the storm. Yet behind this market calm there has been a new erosion of the political and institutional pillars sustaining the Mauricio Macri administration. This even extends to the economic sphere in the form of many businessmen, in silence, starting to see the hope that Frente de Todos frontrunner Alberto Fernández might be a new Carlos Menem with structural reeforms as the best option in the current scenario (which would be bad news for Macri and even worse for Roberto Lavagna). For now though, this editorial proposes to focus on the provincial backlash against the previous week’s economic relief measures and Wednesday’s Federal Appeals Court decisions, especially the former.
Those Wednesday rulings – overturning the Sarmiento rail underpass corruption trial against former Federal Planning minister Julio De Vido and other Kirchnerite ex-officials, alongside pressing ahead with investigation of a 2016 ministerial resolution minimising the Correo Argentino post office debts of the Macri Group to 300 million pesos to be repaid over 15 years – were quickly seen as a turning of the tide in courtrooms, with the Judiciary adjusting to a probable change of political masters. Yet there were solid legal grounds for quashing the Sarmiento trial as well as political opportunism – key evidence was still pending from Brazil and the judge had been much quicker to indict the Kirchnerite ex-officials than the businessmen implicated in the graft. Perhaps Macri should be more worried about the continuation of the Post Office case.
When the economic measures “putting money in people’s pockets” via tax cuts, pay hikes and subsidies were announced on August 14, one might have thought that their main problem would be their blatantly populist and electioneering nature, in direct contradiction to the Macri administration’s pro-market identity (outgoing Economy Minister Nicolás Dujovne would not touch them). The government quickly denied that fiscal targets were in jeopardy since the inflation inevitable from the recent devaluation also inflates revenues (it might also be added that Macri ministries have been prone to underspending their budgets, stretching all the way back to his City Hall days) but the controversy took a new and unexpected turn in the form of a provincial rebellion.
Since three-quarters of provincial governors have been broadly (if not always nominally) aligned with the Peronist opposition throughout the Macri presidency, it might be hard to understand why their rebellion represents any turn of the screw for the embattled president. Perhaps the key to an explanation lies in the main complaint of the governors – if the fiscal cost of raising the income tax floor and removing IVA value-added taxation on basic food items for the rest of the year totals 58 billion pesos, the provinces will have to foot 33 billion of the bill for this “unilateral decision.” But this calculation presupposes that the provinces have been collecting the 57 percent of shared revenues stipulated by the 1988 law, when under the highly centralist Cristina Fernández de Kirchner presidency their share had fallen as low as 30 percent – a discrepancy which goes much further towards defining federal relations until this month than any party labels.
This factor is the main explanation of how a minority government could steer often controversial legislation through Congress despite extreme polarisation with Interior Minister Rogelio Frigerio, provincial governors and former Senate Majority Leader Miguel Angel Pichetto as key players in this process. Even if the result of this minority status rather than generosity, the number of provinces in the red has fallen from 16 to four since 2015 under Macri, a phenomenon reflected in only three or four of the mostly Peronist governors overtly backing any Fernández de Kirchner presidential candidacy before May. What has changed? Just as some businessmen see Alberto Fernández as a potential Menem, so the governors have been convinced by his federalist rhetoric that they can have their Peronist cake and eat it too. There are various other aspects to this dispute – freezing fuel prices for 90 days (again, highly populist at all odds with market laws) had led to a parallel conflict with the oil-producing provinces – but this political shift marks its real importance beyond the various grievances and arguments.
A calmer week on the markets but the
undercurrents continue to swirl.