Last week the accelerating dollar deposit drain was a relatively hushed issue. Not any more. Two Fridays ago (August 30) clients pulled out just over a billion US dollars from their bank accounts after Hernán Lacunza, President Mauricio Macri’s new finance minister, announced the “reprofiling” of Argentina’s debt. Run to the hills, run for your lives. Well, not quite. It was more like run to the banks, run for your cash.
The stampede was audible, the headlines could be held back no more. On Sunday, the government announced capital controls barring corporations from purchasing dollars and limiting individuals to buying US$10,000 a month.
Macri, after losing the presidential primaries 47-32 percent to Peronist Alberto Fernández on August 11, has done two things that he had sworn – most likely, over the complete works of Ayn Rand – that he would never do: fail to honour debt and introduce capital controls. The final frontier is denying people of their bank savings.
It is a frontier that now seems not that far away. Lacunza’s plan is designed to show depositors that banks can return their money. But over three days the Central Bank was forced to relinquish a staggering US$2.3 billion dollars in reserves to quench savers’ thirst.
Come Wednesday, the Government reported that the bleeding had slowed down to about US$400 million a day. But the data made available by the Central Bank is getting fuzzier. The presidential elections are scheduled for October 27 and the Central Bank reserves are finite. Salvation, if only temporary, for Macri could come in the form of a pending US$5.4 billion-dollar deposit from the International Monetary Fund (IMF) before next month’s presidential election. But if the IMF decides not to lay down the money, considering that the terms of its loan have also been “reprofiled,” then the rush to the banks could pick up once more.
Macri’s political time is running out. But more terrifying is that, unless the drain is effectively halted, the nation’s money is running out – along with his political capital. The president looked ashen and drained when he addressed the AEA business forum on Wednesday, declaring the measures were unpleasant but necessary in an “emergency.” The crisis has humbled the centre-right president. Failure to honour dollar deposits would amount to complete and utter humiliation (to the strains of “You never give me your money/You only give me your funny paper”). Macri undid the strict Kirchnerite currency controls immediately after taking office in 2015, but now the controls are back, in a slightly different form, and with them the dollar black market.
Still, Macri has no choice but to face the election if his centre-right coalition is to survive. He has capitulated on many of the capitalist dogmas that he preached as a business leader, a football club chairman and a head of state, but he is still in the race. The campaign is formally restarting right about now and the president told the AEA that he is ready to debate with his rivals and detail how to put right what went wrong.
You can tell that the bank run is real because Alberto Fernández is not addressing the issue directly. The Frente de Todos candidate has already declared that Argentina is in “virtual default,” but he has steered clear of the deposit drop and many of his economists are trying to convince people that their money is safe in the banks. Instead Fernández, who spent the week in Spain, has concentrated on criticising the economic debacle via Twitter, vowing to champion the local industry if he wins the Presidency.
Macri on Wednesday tried to sound like he can still force a run-off next month. But there are days when a disheartened president seems to have delegated power entirely on Lacunza and the Peronist wing of his centre-right coalition. Lower House Speaker Emilio Monzó – a former Peronist operator who had been banished from Macri’s inner circle by Cabinet Chief Marcos Peña – is suddenly taking part in meetings once again. The plan to send a slice of the debt “reprofiling” to Congress for approval has been temporarily halted, though. Congress is effectively controlled by the Peronist opposition and the financial minister was facing a potential debate massacre if he rushed with his plan to Congress in the middle of the campaign.
Lacunza, meanwhile, has declared that the measures to appease jittery savers “are working” and the exodus of deposits is slowing down. Effectively he was celebrating banks having survived for three more days. Delusion could be a problem from now until October. The neoconservative camp must come to terms with a rapidly shifting political landscape. Buenos Aires Province, the nation’s biggest voting district, is on its way to electing as governor a progressive Kirchnerite economist with “unconventional” ideas counter to the orthodoxy that prevails in business circles.
Alberto Fernández, who has former president Cristina Fernández de Kirchner as his running-mate in a united Peronist front leaning to the left, is considered a moderate. But why should he care for the needs of big business when he seems to be heading for a huge win, especially voters are sending out the message that they want collective wage bargaining and beef in their refrigerators? Macri has been punished by defeat and is dealing with it – even when still implying that the cause of the crisis is the upset primary result and not his fumbles (a politically-charged tune also harped by the Central Bank chief). And what about business leaders – are they still in denial? Fernández, if he wins, is likely to be subjected to intense lobbying by sectors of the press and business leaders to deliver market-friendly policies. The markets, left with no their choice, will try to co-opt the Peronist presidential hopeful if he wins. It will be interesting to see how that melodrama unfolds.
The two candidates though are still on speaking terms. The bank run is even more frightening than default and it seems to have brought a halt to an all-out confrontation, at least for now. The void has been filled by much of the press amplifying the controversial calls for land reform made by Juan Grabois, a left-wing Catholic activist who has publicly endorsed the Fernández-Fernández ticket. Yet the uproar is unlikely to sway the election, especially given Grabois is not a candidate and has not been seen in public with Alberto Fernández.
Reality bites, it seems. The best the president can hope for is that the bank run has been halted by his lieutenants. Defeat next month, if it happens, will show that Macri was delusional. But that won’t necessarily do away with the delusion of others.