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OPINION AND ANALYSIS | 20-11-2021 11:55

How to freak out the IMF, an Argentine story

It is difficult to fathom an IMF that will ink a deal with a nation that upholds dual exchange rates, price controls, relentless monetary expansion, and massive energy and utility subsidies in the context of perpetual deficits and extremely high inflation.

The Fernández-Fernández administration’s strategy remains as unclear as it did in its first day in office, with the difference that its margin of manoeuvrability has been reduced dramatically. 

Even after nearly two years in office, it isn’t entirely clear whether we should believe what Alberto Fernández says, or how we should interpret Cristina Fernández de Kirchner's silences and absences. This political game of keeping everyone guessing, whether intentional or not, can work effectively in some cases, as it did in 2019 allowing the pan-Peronist Frente de Todos front to win an impossible election with Mrs. Fernández de Kirchner on the ticket. It hasn’t worked though in building a constructive relationship with opposition coalition Juntos por el Cambio, at least not since the end of the quarantine-era collaboration, and it seems to be freaking out the International Monetary Fund, to the point where there are serious doubts as to whether Economy Minister Martín Guzmán will be able to seal a deal with the multilateral organisation that will be acceptable to authorities in Washington DC, the ruling coalition and the opposition. And one of the biggest causes of uncertainty isn’t US Treasury Secretary Janet Yellen or Buenos Aires City Mayor Horacio Rodríguez Larreta, but the vice-president.

Up until now, President Fernández has had several excuses as to why he hasn’t succeeded in “putting the country back on its feet,” which, in his defense, none of his recent predecessors has achieved with the exception of Néstor Kirchner for a few years (and in the context of extremely favourable external conditions). The economic debacle inherited from the Mauricio Macri administration (which was substantially worse than what Cristina handed off, but obviously also a consequence of her mediocrity), the global Covid-19 pandemic and the midterm elections were different reasons officials in this administration enumerated in order to justify their lacklustre results running the country. The lack of internal cohesion and the opposition (and the media) are a few others. Several of those are valid, but that doesn’t excuse their long string of unforced errors.

A new game has definitely started. With the election behind us and Coivd-19 being kept at bay for now, the Fernández-Fernández administration is trying to re-launch its government once again. With a stronger communication strategy — this time being led by Catalan consultant Antoni Gutiérrez-Rubí — Frente de Todos nearly balanced out the election in the all-important Buenos Aires Province and proposed a narrative of victory, despite a humbling defeat both in the “mother of all battles” and nationwide. Painting a loss as a win and shifting the debate from how they plan to get Argentina out of the hole it’s in has worked for them in the short-term, giving President Fernández a little breathing room while deflating Juntos por el Cambios’ forceful electoral showing. But marketing and communication only go so far, and actions (or lack thereof) will begin to speak more loudly.

Which Alberto Fernández do we believe? The one who spoke rationally about reaching an agreement with the IMF with the support of the opposition in his pre-recorded message on election night? Or the one who calls for “celebrating this victory” and excludes Macri and liberal economist and deputy-elect Javier Miliei from a national governability pact? The president who told the country’s leading businessmen and the minister who said Cristina backs a deal with the IMF? And more importantly, will they be able to hold the vice-president’s feet to the fire when she’s told of the true extent of budget cuts needed to secure said deal?

Restructuring the sovereign debt with the IMF is a necessary but insufficient condition to “get the country back on its feet.” Illusions of a more flexible Fund vanished along with IMF chief Kristalina Georgieva’s authority when she came under investigation for allegedly favouring China while at the World Bank. Whether or not it’s true, the US is now firmly in charge, with Yellen’s deputy at the Fund, David Lipton, empowered. It is difficult to fathom an IMF that will ink a deal with a nation that upholds dual exchange rates, price controls, relentless monetary expansion, and massive energy and utility subsidies in the context of perpetual deficits and extremely high inflation. It must be said, the IMF has a long history of pushing countries over the abyss in the name of orthodoxy and austerity, even when its major shareholder doesn’t really uphold these values. Still, Argentina is incapable of servicing its debt and thus needs to restructure or face default.

Taking the government at face value — a dangerous proposition — the desired outcome is an agreement with the IMF based on a “pluriannual” plan that will be negotiated with the opposition in Congress starting December. The need for congressional approval was a condition put in place by Guzmán during the debt restructuring with private creditors, which was backed by the opposition. What will Juntos por el Cambio do now? As a coalition they delivered an impressive electoral victory, which in turn has fuelled personal ambitions ahead of the 2023 presidential election. Rodríguez Larreta emerged as the prime contender, but his leadership is being questioned both by hardliners within the PRO party and the historical Radical Civic Union (UCR), no longer seeing themselves as supporting actors within the coalition. The rise of right-wingers like Milei and economist José Luis Espert adds additional pressure, pulling at voters closer to the extremes of Macri and PRO party president and former security minister Patricia Bullrich.

With momentum and the rise of internal factions, Juntos por el Cambio finds itself at a crossroads. Having stripped Peronism of its quorum advantage in the Senate and limited its capacity to form majorities in the Chamber of Deputies, it must now determine its course of actions in a substantially more complex environment. Rodríguez Larreta faces challenges from hawks behind the Macri-Bullrich tandem and the Radicals, led by neurosurgeon Facundo Manes in this election.

This is the context for the remaining two years, with the need to secure an agreement with the IMF and a nation battered by inflation, economic decrepitude and rising poverty. The conditions are in place for political rationality to prevail, but they seem to have generally been there. With the economy rebounding and a more balanced political landscape, it’s up to the elected leaders to prove what they were voted into office for.

Agustino Fontevecchia

Agustino Fontevecchia

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