Every day that passes without the price of a dollar hitting the headlines must feel to President Mauricio Macri like he is one step closer to a second term. In the Casa Rosada they know that economic recessions can be cause for any incumbent to fail to win re-election, anywhere in the world. They are even more certain that currency instability can instantly kill prospects for any politician in Argentina.
That is why the events of May, and this first week of June, have filled the president’s inner circle with confidence, providing an electoral fuel that at times powers campaign engines better than money. Some of the latest polls that have started to trickle are saying that President Macri now stands a better chance in a likely second round against Alberto Fernández, the former Cabinet chief who will lead the main Peronist opposition ticket. Just weeks from the the day that the final lists of candidacies are due, on June 22, the question now tormenting the ruling coalition’s political operatives is whether this tranquility will remain through to the spring – or if it is just the calm before another storm.
Unlike in any other presidential campaign in memory in Argentina, the economy has become an independent and maverick variable that nobody can fully control. The Macri administration understands this too well. Even the International Monetary Fund (IMF) has come to understand the fact – its managing director Christine Lagarde said this week that they had “underestimated Argentina’s complicated economic situation.” In late April, the IMF approved the Central Bank’s decision to use foreign reserves more freely in the likelihood of another run on the peso. Many of those reserves, needless to say, come from the IMF in the first place, delivered as part of the US$56-billion stand-by agreement signed last year, when the country was shut out from voluntary markets.
But in financial circles, they take it for granted that if the pressure on the peso mounts, the administration would not be able to happily spend all those dollars without – at the very least – giving the IMF a call. In Argentina, the currency is always under pressure, and even more so when there is great political uncertainty on the horizon. In 2011, the year Cristina Fernández de Kirchner won re-election with 54 percent of the vote, Argentines purchased a net total of US$18 billion, a stampede that would lead to the implementation after the vote of the currency exchange clamp popularly known as ‘el cepo,’ which lasted until Macri took office in December, 2015.
Under Macri’s Presidency, without a cepo, the hunger for greenbacks has only risen: net purchases were US$12.3 billion in 2016, US$17.7 billion in 2017 and US$18 billion in 2018. In the first four months of 2019, Argentines have already pocketed US$4 billion, according to Central Bank data. That trend is likely to rise in the coming weeks and months, as it will when the high season for soybean and wheat harvest sales is over. Foreign reserves stand at around US$65 billion.
However, the mood of Argentines with pesos in their pockets is not the only variable the government needs to keep an eye on, nor is it the only variable the government does not fully control. Another major factor will be the economics and politics of Argentina’s largest trading partner, Brazil, and the performance of the global economy, whose trade-related uncertainties risk triggering a flight to quality that Argentina’s fragile finances are hardly capable of enduring.
On Thursday, the president hosted a flash state visit, in which Jair Bolsonaro was guest of honour. It was the Brazilian leader’s first trip here since he was sworn in as president in January. Argentina’s economy, and most especially the jobintensive manufacturing sector, depends heavily on the performance of Brazil in order to place its products. But our giant neighbour, which suffered its worst recession ever from 2014 to 2016, is still struggling to fully recover. Last week, it reported its first negative quarter since that dark period, leading to a downward correction of its growth forecasts for the remainder of the year, shrinking down from 2.5 to 1.6 percent.
But Brazil can become a black swan for Argentina in another, even more twisted way. The world is closely watching Bolsonaro, who in Buenos Aires was explicit again about his wish for Macri to win re-election. The outspoken leader urged Argentines to “vote with their reason, rather than their hearts.” The world is even more closely watching Bolsonaro’s powerful economy minister, Paulo Guedes, who is in charge of giving the right-wing populist a pro-market patina.
Guedes has said he will stay in the job, provided Brazil’s unpredictable and fragmented Congress approves a key pension reform bill the Bolsonaro administration is selling as the solution to all of the country’s economic ills. However, a misstep by the Bolsonaro-Guedes team could further fuel emerging market panic, which would impact badly on Brazil’s frailer neighbour to the south. And there is very little Macri can do about that.