Tuesday, August 3, 2021

OPINION AND ANALYSIS | 11-01-2020 10:16

Alberto’s ‘Robin Hood’ approach offers clues for the future

On debt, the government hopes to get a grace period of four years in an ideal scenario, but given the ambiguous willingness that IMF staffers and creditors seem to be showing, it is likely to get closer to two – if things go relatively well.

Alberto Fernández’s first month in office has given us a few concrete clues about how the president views this first stage of his administration and, if things go as planned, the broad outline of his entire term.

First of all, the president has decided to give a little “Robin Hood” lustre to his first few weeks in office. The Social Solidarity and Economic Revitalisation package of legislation, which he got through Congress in no time at all, follows the overall precept of taking from the top to distribute (something) at the bottom (and also pay debt). However, given Argentina’s delicate economic situation after almost two years of recession, the line that divides the “top” from the “bottom” is more arbitrary and necessarily controversial. The “top,” for instance, includes retirees who make 20,000 pesos a month or state staff that take in 60,000.

This adjustment for the relatively betteroff constitutes the core of Fernández’s public language over these first weeks. Contrary to his predecessor Mauricio Macri during the final sprint of his administration, who would repeatedly acknowledge that “all Argentines” had to make an effort, Fernández is trying to segment his policies and messages. It makes political sense: the lower echelons of Argentina are the president's main political powerbase.

The International Monetary Fund (IMF) applauded the Peronist leader’s approach this week. In an interview – the full version of which will be aired by CNN tomorrow – the director of the IMF’s Western Hemisphere Department, Alejandro Werner, said that the measures taken by the Fernández administration in its first month is moving “in a positive direction” because it is seeking to take care of the most vulnerable sectors of the public “without affecting the country’s fiscal accounts.” Werner, however, also noted that these are only the first steps and that “their medium-term programme is not on the table yet.”

In fact, given a closer look, the solidarity package is not per se capable of delivering on the second half of its fancy title: revitalisation. The president’s economic team knows that the “reverse spillover” that the law hopes to trigger will only generate short-term relief and gain the administration some time to move forward with the two issues that most concern the immediate future of the country: debt and inflation.

During the summer, the government will have to move on these two agendas simultaneously, engaging in talks with the IMF and the rest of the creditors on the one hand, and with local business and union leaders on the other. Come March, the Fernández administration will have to show results on both fronts if it wants to build enough internal and external credibility for the rest of the year (and the rest of his term). Creditors will have to accept that debt payments will be suspended – the government hopes to get a grace period of four years in an ideal scenario, but given the ambiguous willingness that IMF staffers and creditors seem to be showing, it is likely to get closer to two – if things go relatively well.

Locally, President Fernández needs to curb inflation expectations by getting business chambers and trade unions to agree on a reasonable horizon of price and wage increases for the coming year. Inflation will be wrapping up 2019 at 52-53 percent – Argentina’s new economic team wants to bring it down to 35- 40 percent in 2020. The first steps in these negotiations have been mostly symbolic: sitting people at a negotiating table to agree on generalities and sign nicely worded documents. But given the fragmentation in both business and union ranks, agreements reached at the top level might not be easy to enforce in real life, which means that meeting the wage and price agreement targets will depend on the credibility of the government programme rather than the players’ will.

Multiple price freezes including utility rates and transport, attached to the super currency exchange controls that sustain the value of the peso, give the government some leeway to advance this agenda of agreements. But the more moderate voices in Fernández’s economic team believe that a price thaw should start sometime before the six months established by the new emergency legislation, closer to the second rather than the third bimester, so that the new programme does not accumulate early distortions that might prove difficult to be undone later.

In any case, a key political variable to watch in the coming weeks will be patience, a virtue that does not abound in Argentina’s political and social reality. Without any good news to give, the president at least hopes to be capable of avoiding a flood of bad ones.

After two years of consecutive defeats, the country might celebrate a draw as if it were a grand victory.

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Marcelo J. Garcia

Marcelo J. Garcia


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