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OP-ED | 14-10-2023 05:20

We’ve got the blues again

Regardless of whether Milei is an economic terrorist or whether the government is the architect of its own destruction, the problems caused by the extreme volatility of this week’s four-digit dollar are all too real with panic price increases across the board.

For most governments in the world terrorism today would be defined as the shock massacres being inflicted on Israel but here the outgoing Alberto Fernández administration would seem more inclined to give it the name and surname of Javier Milei. Which would be overrating the libertarian maverick – we have seen this movie of pre-electoral panics comparable to this week’s four-digit ‘blue dollar’ more than once before in these 40 years of democracy. Milei was only saying out loud with his usual gratuitously coarse language what almost everybody was thinking – could it honestly be said that amid such extreme volatility nobody had any doubts about renewing their fixed-term deposits in pesos before the presidential frontrunner erupted?

Talk is cheap, as they say, while Milei is not the man printing three trillion pesos so far this year, making him more effect than cause – surely the root cause of inflation although it tends to be velocity of circulation rather than volume which turns the corner into hyperinflation. Deposit drainage is inevitable with no escape in the form of the classic antidote to inflation of hiking interest rates because this would swell the stratospheric costs of redeeming Leliqs and other bonds, turning an already terrifying quasi-fiscal deficit into an even more impossible multi-trillion snowball (curiously viewed as a potential asset within Milei’s dollarisation schemes via a burst of confidence transforming its nominal into real value). Yet it is at this point that Milei starts to become a terrorist at his own expense, shooting himself in the foot by fuelling the flames with his toxic venom and thus making any La Libertad Avanza presidency (which continues to be the expectation of most) even more complex than it already is. Talk might not be so cheap after all.

But regardless of whether Milei is an economic terrorist or whether the government is the architect of its own destruction, the problems caused by the extreme volatility of this week’s four-digit dollar are all too real with panic price increases across the board. Problems which are more likely to be laid at the government’s door than blamed on Milei. October might be considered the supreme Peronist month as containing both next Tuesday’s Peronist Loyalty Day and Juan Domingo Perón’s birthday (last Sunday and thus coinciding with the second presidential debate, a detail which seems to have gone unnoticed) but it has been a nightmare so far for the government with this black and blue week coming on top of the continuing fallout from the monstrous scandal stemming from Martín Insaurralde’s Marbella yachting jaunt.

This might already look like game over but is it? There is still a week to go and in that week President Fernández will be travelling to China where his top priority will be releasing a currency swap of some US$5 billion for money market intervention. The impact of these ‘blue dollar’ surges is so huge that it can easily be forgotten that it is a tiny market against which just a few billion dollars provide more than sufficient firepower – an injection which could also solve all import problems during the short space of a week. That money is not yet in the bag (and cannot be taken for granted with China’s increasing economic constraints) but neither is the election.

This brings us back to the continuing isolationism of a political class which could find no time for international relations in two presidential debates and which is capable of defining terrorism as Milei rather than Hamas. Israel is undoubtedly the global urgency of the moment but China might well be the main question in a longer term. Beyond all the alarmism coming from Washington, two extreme dangers are concrete possibilities. The first is for the outgoing administration to sell the country down the river in order to bail itself out of its acute economic, fiscal and monetary problems. And the second is Milei’s pledge to sever all political and commercial ties with “Communist” China (if only at public-sector level) – if Beijing shares the widespread expectation of a libertarian victory, this will also make the presidential mission of seeking more slack for the currency swap all the more uphill.

The economic and electoral uncertainty at the end of this week could not be more extreme but whatever the upshot, it cannot be anything which Argentina has never experienced before in its volatile history, not even hyperinflation. A new chapter is around the corner but the book remains open.    ​

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