Hanging on in quiet desperation

The administration formally led by President Alberto Fernández but under the de facto control of Economy Minister Sergio Massa has definitely assimilated the blow of a brutal run on the peso that pushed it to the edge.

Massa is resilient, much more so than his predecessors, but even he has a limit, despite counting on the tacit support of Cristina Fernández de Kirchner, the “lender of last resort” when it comes to the political capital backstopping this slow-motion train wreck of a government. As a fearful population watches news on TV and online showing the black market “dólar blue” flirt with 500 pesos per greenback, the economy minister and the rest of the political class is trying to figure out how to stop the meteoric rise of libertarian economist Javier Miliei, whose political platform is based on the incineration of the Central Bank and the forced dollarisation of the economy. Hanging on in quiet desperation, as the song goes, Argentines are once again hostages to runaway inflation and the evaporation of their purchasing power ahead of a triple election event that remains too far to even predict in what state we’ll arrive there, not to mention the end of the month.

The chain of events that will be most consequential in delivering the next inhabitant of the Casa Rosada have already been set in motion. They are irreversible. President Alberto somehow dreamed of re-election, even though the old fox was probably aware that his rejection figures and the erosion of his public image after three disastrous years in power made that impossible. Probably trying to avoid being a lame duck for as long as possible, he was expecting to renounce his candidacy as close to the deadline as possible, trying as hard as he could to paint it under some sort of patriotic light. Impossible– forced to quit his ambitions given the severity of the run on the peso, the government lost even further political capital and is now essentially left with just Massa. Fernández de Kirchner had already renounced any potential candidacy in one of those fierce rants against the Judiciary that she blames for all her problems under the guise of “lawfare.” She didn’t need to, it was clear that a presidential victory was out of her reach — as it was in 2019 when she had no choice but to pick Alberto, the blandest Peronist around, she could find in order to transpose her popularity and political backing — but she did have a decent chance at a Senate seat in the Buenos Aires Province, the Kirchnerite bastion that is most definitely under attack. Governor Axel Kicillof has been begging her to review her decision, as has son Máximo, both of whom know victory in the most populous province known as the “mother of all battles” is in jeopardy. As always, the lady plays her cards close to the vest.

Massa, who enjoyed his early days in the Economy Ministry under the guise of having saved the economy from the collapse sparked by Martín Guzmán’s bombastic resignation, is now under pressure. Economic policy can be conducted via communicational channels as former Fed chairman Ben Bernanke taught us, but there needs to be some sort of firepower in case the going gets tough. After a series of initial successes, Massa’s powder has gone dry and he and the country are out of dollars a few months early. This has forced him to break an important clause of the agreement with the International Monetary Fund. He used scarce foreign reserves to intervene in the currency market in the heat of the run on the peso. It may have temporarily worked, but now he needs to figure out how to get to the election in one piece. He’s resorted to blaming the opposition and “The Right” for speculative moves against his administration and is looking for some sort of price agreement with key sectors in order to cut the inflationary momentum that remains out of control. Doubtful policies in the midst of a treacherous storm, hopefully the IMF will lend him a hand. He is still convinced of being the ruling coalition’s best candidate, which in this bizarre moment could actually be true.

Along with Massa, the other main protagonist of the political scene these days is Milei. As the Argentine electorate watches the pace at which its money disintegrates accelerate, the far-right economist has (kind of) laid out his plan to dollarise the economy. For the vast majority of the population it is impossible to fathom how this would occur and what consequences it would actually have, but it does sound appealing if it works like the early days of the 1990s-era convertibility that seemed to make all of us rich (even though it was just an illusion). According to Miliei, the plan could be set in motion at around today’s black market exchange rate (say, 450 pesos), for which he would need some US$33 billion in total financing to exchange all pesos for dollars. Added to official reserves he would take ownership of the US$75 billion in sovereign debt owed by the state to the Central Bank, a part of which he could sell in the face of a potential surge in its face value given a sudden jump in expectations and credibility.

Milei has now become the punching bag for the whole of the political spectrum, from the government that accuses him of trying to detonate a devaluation-causing grenade in currency markets to Juntos por el Cambio, the opposition coalition, which is now calling him a populist. Hernân Lacunza, who was Mauricio Macri’s last economy minister and is a close advisor of Horacio Rodríguez Larreta, suggests the implicit peso-dollar exchange rate in a dollarisation scenario would be around 3,000 to 4,000 pesos, meaning a devaluation of nearly 700 percent. Other estimates go much higher.

It isn’t immediately clear whether dollarisation would be implementable here and even if it is the right solution for Argentina’s woes. The mere talk of it, and the immediate pushback from the whole of the political spectrum, means Milei has struck a nerve. He’s risen in polls to the point where it’s not far-fetched to imagine a three-way tie in the upcoming PASO primaries, with Milei the single-most voted candidate allowing him to take a victory bow in the face of fragmentation in both leading coalitions. Milei knows he’s on the verge of making the run-off, a turn of events that could push the Frente de Todos to third place. And if he faced off against Rodríguez Larreta instead of Patricia Bullrich, the level of polarisation that is rife in Argentina could even give him a chance. The further the situation deteriorates, the better it is for Milei.