Sunday, October 2, 2022

OPINION AND ANALYSIS | 21-12-2019 10:49

Around the crisis in 180 days

With extra powers and an economic Cabinet that politically responds to his directives, the president would be able to claim the credit of success – but he would also have to pay the full price of failure.

Argentina is, politically, what you could call an extreme presidential system. And, economically, Argentina is what even an uninformed observer would describe as anarchy. These two features conflate, more often than not, in eroding presidential authority: if a president with plenty of powers cannot govern the economy, then the economy, sooner or later, harms the president politically.

This sequence of events has happened systematically since the country’s return to democratic rule in 1983. Presidents amass power only to eventually fail economically and then lose it all again. Arguably, the sole exception was Néstor Kirchner, who took charge of Argentina in 2003, when the economy was already in default, starting to emerge from the 2001-2002 meltdown, profiting from a China-driven commodity boom. President Alberto Fernández cherishes those years as the golden days of his political career.

With the approval in Congress of special powers and the executive authority to run the economy almost at will, Fernández will follow that lineage of overpowered presidents. He will also face the risks attached. The “Solidarity and Economic Revitalisation” mega-package technically lasts through 2020, but it also sets 180 days as the deadline for a number of crucial things to be resolved. The state of affairs in the first half of Fernández’s first year in office will define much of the future of the new president’s term – and the way politics and its satellites revolves around him.

Once the new bill is published in the Boletín Oficial, the government will have 180 days to, for instance, revise contracts and rates in the politically sensitive gas and electricity sectors. A massive increase in rates over the last four years (albeit from a very low baseline) contributed to former president Mauricio Macri’s loss of public approval. Fernández said this week that the current contracts, which mostly denominate rates in US dollars, “serve the producers but not the consumers and the economy overall.” An overall revision of rates will have to maintain a delicate balance between keeping the sector alive (including Vaca Muerta, the country’s star shale reservoir) and the public’s needs and capacity.

During those 180 days, Argentina’s business sector will have to produce double severance packages if they want to fire staff. The economy will quickly be moving into its third year of recession and many companies are barely clinging on. As part of his imposition of solidarity, the president is telling them to hang on to their employees and at the same time promising – as the bill’s title goes – that the economy will pick up in the second half of the year.

For that to happen, however, something will have to happen earlier than that deadline. Within half of that time, to be precise, Argentina has to reach an understanding with bondholders of the country’s debt. These people were buoyant this week: at the news of the emergency package and the prospects of its quick passage in Congress, Argentine bonds and stocks abroad regained value and the country’s credit-risk rating dropped to its lowest since the August PASO primaries. They have their reasons: the fiscal package aims at collecting roughly 1.5 percent of GDP, which would give the administration more leeway in moving to repay debt.

This is the prime job that Economy Minister Martín Guzmán faces during the hot porteño summer. The new official said this week that getting the emergency legislation through Congress was a sine qua non condition if the administration is to open new talks with the IMF and the private bondholders. In the meantime, the emergency bill allocates US$4.5 billion of the country’s shrinking reserves to service impending debt.

After these first months in office, pundits will find it easier to visualise and gauge Alberto Fernández’s presidential standing. With extra powers and an economic Cabinet that politically responds to his directives, the president would be able to claim the credit of success – but he would also have to pay the full price of failure. The first moves of the ruling Peronist alliance in Congress show,  predictably, a solid unity of action, with Lower House Speaker Sergio Massa serving as a political pivot. On the contrary, the new Juntos por el Cambio opposition had its first rifts over how to deal with and relate to the new Fernández administration. While the UCR Radicals – and most especially the Radical governors that rely on federal government funding to make ends meet – were eager to discuss terms with the Casa Rosada, the congressional caucuses sought a more hardline stance, because the new legislation virtually shuts down Congress in terms of its influence over the economy.

With a difficult road ahead, not having a say in a process with an uncertain outcome might not be such a bad idea for the opposition after all. 

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Marcelo J. Garcia

Marcelo J. Garcia


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