Tuesday, April 13, 2021

OPINION AND ANALYSIS | 26-05-2018 09:46

Changing scenario – or staged?

Now that an overvalued peso has been abandoned as an anchor against inflation, the next most effective tool in Argentine experience has been recession.

The New England academic Dr Hale confesses to betraying the memory of his ancestral family’s most famous member, Nathan Hale (best known for his last words: “I only regret that I have but one life to lose for my country,” just before being executed as a spy by the redcoats in 1776). He writes:

“Somewhat against my better instincts, I ended up watching the Windsor wedding last weekend, mostly because of the novelty of an American in the British Royal Family (not old enough to remember Wallis Warfield Simpson, but then who is?), and I couldn’t help noticing that the Gospel choir inserted into the ceremony to pamper the bride chose as their song: ‘Stand by me,’ which must be President Mauricio Macri’s theme tune these days as he pursues his stand-by loan. And with Boris Johnson (surely Donald Trump’s strongest rival for a bad hair day) flying into Buenos Aires immediately afterwards, what more endorsement could you want from that country at least? Not that there weren’t a few faces missing at the G20 huddle of foreign ministers, including our own Mike Pompeo (related to Macri’s international affairs backroom boy Fulvio Pompeo?).

“The incomplete quorum of that huddle and the extremely vague support voiced prompt me to throw back at you your punch line question from a fortnight ago: ‘Is a G20 chair too big to fail?’ Are you sure about that? Total renewal of the Lebacs and the positive outlook for that stand-by credit line have gained the government time but how much? Meanwhile the real economy is moving in the opposite direction with more inflation and less growth (as admitted by the brand-new economic czar, Treasury Minister Nicolás Dujovne), looking more like 2016 by the minute – the combo of bad harvest and currency crisis is a worse nightmare for Argentina than most countries. Anyway you tell me how you see it.

Harking back to the royal wedding, permit me one final reflection in the form of my J.P. Donleavy quote from three weeks ago: ‘I could only live in the United States because it’s the only country in the world which hasn’t been Americanised.’ It’s taken a while to avenge Nathan Hale but we’re getting there.”

My reply:

“For almost 30 months various pundits have been arguing with some frequency that Macri’s biggest handicap was not inheriting a crisis with which to justify his planned policies (unlike Carlos Menem after the 1989 hyperinflation or the Kirchners after the 2001-2002 meltdown) – none of the fuses on the time-bombs left by Kirchnerism were that short. Could it be that Macri finally decided that he could not avoid this Napoleonic logic of no omelettes without breaking eggs and blew up this currency turbulence into a crisis traumatic enough to warrant a more serious dose of austerity than gradualism? The relative ease and speed with which this somewhat synthetic mini-crisis was halted looks suspicious. In his time Winston Churchill could sell ‘blood, sweat and tears’ to the British people because the alternative was Adolf Hitler – the Argentine general public (and not just the opposition) probably needed scaring over a few weeks rather than days in order to start living within their means rather more promptly. At the same time what ended up looking like a tempest in a teapot (for now at least) only lent credence to those who argued that turning to the International Monetary Fund (IMF) was an absurdly unprecedented overkill – although it is also true that the extra firepower of US$20-30 billion from potential IMF aid made it easier to face down the money markets on the eve of Lebac renewal.

“Regarding the ongoing talks with the IMF, it seems that the tail might be wagging the dog although which is which? Could it be that Macri is presenting IMF recipes as a cloak for the tougher fiscal line which he himself wished to impose from the start? Or is it the other way round? While the IMF denies any imposition, could Macri and Dujovne be strenuously anticipating the fiscal deficit, devaluation and other targets recommended by their lenders in order to make it seem as if they were calling the shots? All idle speculation until we see the final agreement – and you’re supposed to be the one writing sentences ending in question-marks, not me.

“You raise the spectre of the stagflation of 2016 and that is a valid concern. Monetary policy seems back under control with Central Bank Governor Federico Sturzenegger’s authority apparently restored and a new defence line of a 25-peso and 40-percent interest rates which looks like holding for now – it is the productive rot in the real economy (as reflected by the dismal export performances of recent years) which needs to be addressed. Now that an overvalued peso has been abandoned as an anchor against inflation, the next most effective tool in Argentine experience has been recession. And those 40-percent interest rates carry every appearance of being disastrously recessive although that can also be deceptive – since bank deposits in all currencies are barely a quarter of the economy and credit much less, this blunts the impact of interest rates. As for inflation, there are still a few days left in May but a month which previously could only improve on an April including 40-percent household gas bill hikes now shows every sign of being worse. The ravages of devaluation have yet to make themselves felt with only a decelarating growth rate to improve what you economists like to call the ‘pass through.’ Nor do world oil prices of around US$80 per barrel help an economy which moves on wheels (not that they seem to help Venezuela either).

“On the same day some of the G20 ministers were meeting here at the start of the week, national football squad coach Jorge Sampaoli was announcing his G23 for the World Cup in Russia next month. The awesome percentages of the G20 – almost two-thirds of the globe’s population, 80 percent of economic output, three-quarters of world trade (including 80 percent of food trade from 60 percent of the arable land), etc. – abruptly shrink to some 35 percent of World Cup participants with just 11 of the G20 countries surviving the qualifying rounds. The absentees include your country, Dr Hale – you might have broken into the British Royal Family this year but not the World Cup.”

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Michael Soltys

Michael Soltys

Michael Soltys, who first entered the Buenos Aires Herald in 1983, held various editorial posts at the newspaper from 1990 and was the lead writer of the publication’s editorials from 1987 until 2017.


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