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OPINION AND ANALYSIS | 20-02-2021 07:12

The anchor: Guzmán’s second mistake?

The Fernández administration has doubled down on an economic strategy that appears aimed at winning this year’s midterm elections. Whether or not Economy Minister Martín Guzmán agrees with the plan is debatable.

The Alberto Fernández administration has found itself locked once again in Argentina’s usual conundrum: how to tame inflation while winning elections. The contradiction gives rise to a series of readymade, but obscure, pieces of jargon including “el dólar como ancla inflacionaria” (“using the dollar as an anchor for inflation”), “atraso cambiario” (“exchange rate retardation”), “vivir con lo nuestro” (“living within our means”), and others. A quick Internet search reveals the country’s intellectual antiquity – several of these concepts remaining unchanged for at least half a century, which in turn suggests the economic debate regarding these issues is stuck at the heat of the Cold War, begotten by a modernism that is long gone. In and of itself, aged terminology is not bad or good – rather, the outcome of their utilisation should determine whether or not they deserve to be considered vintage or corked. Whatever economic policymaking has been put into action in Argentina at least over the past 50 years has proven to bring us back to more of the same decrepitude, meaning that if we don’t modernise our thinking we will continue to lag well behind our regional neighbours and the rest of the world.

The Fernández-Fernández administration has doubled down on an economic strategy that appears aimed at winning this year’s midterm elections. Whether or not Economy Minister Martín Guzmán agrees with the plan is debatable, but he is still the public face of this administration’s attempts at taming the unruly Argentine economy. The “market” or  Argentina’s most important economic actors — and militant media groups on both sides of ‘la grieta’ — have convinced themselves that Guzmán’s plan is being constantly modified from within the Instituto Patría, the Kirchnerite think-tank that supposedly responds to Vice-President Cristina Fernández de Kirchner and her closest associates, including son Máximo (who heads the Peronist bloc in the Chamber of Deputies) and Buenos Aires Province Governor Axel Kicillof, who was CFK’s economy minister and used to brand himself a Marxist. Beyond supposed ideology, it is best to stay with the facts in order to try and make an educated guess at what is going on and what will happen.

Unfortunately, most commentators in this country, and the few that look on from abroad, are infected with deep polarisation, the type of which grows stronger with every passing day. Whether Cristina is an evil Machiavellian genius that aims to destroy the “oligarchy” of the “right,” or Alberto Fernández is trying to tackle the country’s systemic issues ineptly, is up to the analyst. To make things worse, the ruling Frente de Todos coalition is a mishmash that spans the ideological and political spectrum, meaning that a lot of the information coming straight out of the frontlines of this administration by no means represents a uniform thought, or the true internal balance of power. The Fernández administration is very fond of the ‘off the record’ modality, much like their counterparts in the opposition, Juntos por el Cambio.

Thus, we must take the Economy Minister at face value, and read policy as part of a negotiated plan by internal stakeholders that ultimately agree on a general direction. Over the past few weeks, Guzmán has raised his public exposure, facing journalist Marcelo Bonelli in a tough interview with a media group that has aligned itself against the government, while presenting his “pluriannual” plan to the private sector in the Casa Rosada and receiving a standing ovation from the CEOs of the country’s largest companies, as detailed last week in this column. Clearly on an electoral note, the economy minister took on a combative position against the Mauricio Macri administration, breaking with his technocratic style and incurring in certain half-truths that do not represent the image of himself that he has portrayed throughout his career.

One of the highlights of his public appearances had to do with the value of the dollar, Argentina’s usual ‘fear gauge.’ Guzmán noted he plans to decelerate the pace of the official exchange rate’s devaluation, aiming at a 25 percent slide of the peso-dollar rate in 2021. This compares to an “official” inflation goal of 29 percent, resulting in an expected increase in value in real terms of the peso of 16 percent. This, then, is the famous anchor or ‘exchange rate retardation’ with which the Fernández-Fernández administration is seeking to guarantee that salaries outstrip inflation, creating real wage growth the type of which hasn’t occurred since Macri’s second year in office. In 2017, President Macri’s economic team led by Central Bank chief Federico Sturzenegger and economy minister Nicolás Dujovne also relied on the anchor, with inflation falling from 40 percent to 24.8 percent, output expanding 2.7 percent and the value of the dollar remaining relatively steady at an average $17.05.

To complement the anchor, the government is relying on extremely strict capital controls (“super cepo”), and a policy of state-mandated values for several of the main economic variables including salaries and pensions, public utility bills, and necessary goods including telecommunication and food. This last one has pitted them in a public war against the agricultural sector first and food producers second. This past week, Interior Commerce Secretary Paula Español — who has been gaining a lot of power and notoriety lately — accused several of the country’s largest companies of creating artificial shortages of food products by reducing production or exchanging products and brands under a price freeze for others in order to hike prices. The strategy, reminiscent of the Kicillof-Guillermo Moreno tandem during Fernández de Kirchner’s second presidency, aims to control the price of goods through the long arm of the state.

Most economic actors don’t believe in Guzmán’s targets, with inflation expected in the 45 to 50 percent range, and the peso’s devaluation around 40 percent. Economists are notorious for missing their marks, though, and among those close to Guzmán they claim he is serious about his figures ( the fact that this needs to be clarified is already a bad omen). At the same time, Argentina has a very real need to refinance its debt with the International Monetary Fund and even so will count with extremely limited reserves in order to defend the value of the peso and its intended trajectory. The pessimists also note capital controls and a lack of dollars will explicitly reduce imports, while exchange rate retardation will incentivise commodity producers to stock their goods for as long as they can, meaning the tepid economic rebound will remain constrained.

Economies operate under future expectations and incentives, and these are ultimately derived from trust. The private sector seems to trust Guzmán but not his plan, which they attribute to Cristina. The market trusted Macri and his plan and things still imploded at the first sign of distress. Can Alberto, Cristina, and Guzmán make it work this time around? Seems unlikely, if we base it off past experiences. Yet, if political power is used to fix the underlying inconsistencies instead of trying to win elections, there may be hope.

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Agustino Fontevecchia

Agustino Fontevecchia

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