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OPINION AND ANALYSIS | 04-02-2022 23:10

A conversation with Professor Stiglitz

The strong show of political support for Guzmán’s negotiating techniques from one of the world’s most renowned economists is the mirror image of what he’s suffered internally, particularly within the ranks of Frente de Todos.

Argentina has once again become a relevant subject matter for some of the most important English-language media outlets and scholars on the back of the recent agreement with the International Monetary Fund over its unsustainable debt. In recent weeks, both the Financial Times and The Economist penned critical editorials, as did The Wall Street Journal. The staunchest supporter of the Argentine cause happens to be none other than Joseph Stiglitz, the Nobel laureate and Columbia University professor who's been critical of the International Monetary Fund and austerity policies for some time now. Stiglitz, it seems, is the only one that’s happy with his protégé, Economy Minister Martín Guzmán, and the results of the negotiation with the IMF, which, in his words, doesn’t impose “detrimental austerity and other counterproductive conditionalities.”

Stiglitz appears to be alone in his defence of Guzmán’s negotiation strategy, even when counting the minister himself, who recently noted that “nobody can be happy to have the IMF in our country” after explaining that “we arrived at the best agreement we could get.” Such enthusiasm. Alberto Fernández, Argentina’s president, initially appeared content, justifying the deal by saying the agreement didn’t include structural reforms, reductions in public works projects or a zero-deficit policy. “We had a noose around our neck, the sword of Damocles,” he said in a pre-recorded statement at the Olivos presidential residence. “Now we have a path to go on.” A few days later he offered a different perspective: “There’s nothing to celebrate here, but if we hadn’t closed by Friday, today I wouldn’t be here speaking with you but analysing whether to decree a bank holiday on Monday [to avoid a run on the peso],” he said to Página/12, less than 48 hours after announcing the deal.

In his two pieces defending Argentina’s stance, Professor Stiglitz highlights an impressive economic rebound in 2021 with GDP expanding 10 percent and a fall in the primary budget deficit of 3.5 percentage points. Growth, rather than austerity, is a much better antidote for balance of payment crises and rampant fiscal deficits, as the failed 2018 programme signed on by former president Mauricio Macri would show. “In the upside-down world we live in,” Stiglitz writes alongside economist Mark Weisbrot in Foreign Policy, “there’s a school of thought that argues that contractionary policies can be expansionary.” The idea would be that slashing deficits builds confidence, which in turn attracts capital inflows and then investments that would overcompensate reduced government spending. This is the hypocrisy of rich nations that relied on aggressive fiscal spending in the face of Covid-19 and would now force Argentina and other developing nations to go the other way. Regarding persistent high inflation, the Nobel laureate pins the blame on Macri but also claims the costs of bringing it down quickly outweigh the benefits in that it would stifle the recovery and job growth. He does pat his own back a few times, calling Argentina’s negotiators “well-trained economists” with a “high-level of expertise at the negotiating table.”

The strong show of political support for Guzmán’s negotiating techniques from one of the world’s most renowned economists is the mirror image of what he’s suffered internally, particularly within the ranks of Frente de Todos. The bombshell resignation of Máximo Kirchner from the leadership of the ruling coalition’s bloc in the lower house Chamber of Deputies and his scathing letter delivered a debilitating blow to Guzmán – and President Alberto of course. Claiming he cannot defend the indefensible, he decided to step aside, which forces one to ask, what does Momma Cristina think? Mrs. Fernández de Kirchner, the vice-president, hasn’t said a word, but those close to her and Máximo say they feel betrayed by Alberto and Guzmán. Máximo K apparently said it to the president’s face when he phoned to inform him of his resignation, allegedly telling him he never agreed with Cristina’s decision to pick him for the Presidency. His delusions of grandeur — Alberto is reported to have stayed calm during the meeting, only to call him infantile with his closest aides in the aftermath — are in some way tied to an image of himself as part of the Kirchner clan who finally got the IMF out of the country. A sort of Mel Gibson-like patriot fighting the Evil Empire for national sovereignty.

The “exposed fracture” within Frente de Todos didn’t count on the vice-president’s approval, who is said to have been equally dismayed by the level of fiscal tightening exposed by Guzmán’s numbers, particularly ahead of the upcoming electoral season. President Fernández isn’t all that happy with his economy minister either, according to a few reports, as he’s been misleading throughout the whole IMF ordeal. Ultimately, Guzmán didn’t manage to bring home an extraordinary extension of maturities or a reduction on IMF surcharges, or other exotic suggestions such as green bonds to pay for debt. And he’s pissed everyone off, including Sergio Massa (who is trying to paint himself as the saviour of the deal after IMF chief Kristalina Georgieva received a last second call indicating the US Treasury Department and State Department backed the deal), and even the IMF’s negotiating team. According to information published by La Nación, at one point Kristalina asked Gustavo Béliz, strategic affairs secretary, to take over negotiations.

If I were to share a conversation with Professor Stiglitz, I’d ask him whether pissing everyone off isn’t a sign of a job well done. Ultimately, if Guzmán’s extravagant strategy implied keeping information from other members of the governing coalition (possibly including the Fernández-Fernández tandem) and pushing the IMF negotiators to a limit where they agreed on a “soft” deal with Argentina in order to avoid default, then he very well may have achieved the best possible deal under current circumstances. I’d also ask about the importance of how to communicate things, given this “anti-austerity” IMF programme includes a path of fiscal consolidation that would eliminate the deficit by 2025 and aggressively cut monetary financing. Is there indeed no austerity here, or just no “structural reforms,” given they probably wouldn’t be politically achievable? And, to cap it off, whether he truly believes the 2018 IMF deal, persistently high inflation, economic contraction, and some of the worse poverty figures in a very long time in Argentina are all just Macri’s fault – or whether he’s also playing Guzmán’s game?

Agustino Fontevecchia

Agustino Fontevecchia

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