Sunday, January 23, 2022

OPINION AND ANALYSIS | 21-12-2019 10:22

The new economic order

It is unsurprising that, despite the warm hopes aroused by Fernández’s soothing rhetoric, outside Kirchnerite circles pessimists are rather thicker on the ground than optimists.

For many years now, politicians have insisted that most of Argentina’s many economic problems could be solved by making the gross domestic product much bigger, something they have always assumed was a simple matter of choice. Until he got put in charge, President Alberto Fernández agreed: when on the campaign trail, he made out that with him in the Pink House the country would soon start producing far more than it did under Mauricio Macri, a man allegedly so conservative he was in favour of stagnation because he thought it to keep things the way they were.

Does this mean that the new government will do its best to remove the many obstacles to growth that have accumulated over the years? To judge by its initial measures and by statements made by Martin Guzmán, the Columbia University academic called in to save Argentina’s economy from sinking beneath the waves, any effort to do so will have to wait until everyone in the country gets three square meals a day and unemployment has been almost abolished. As far as Fernández is concerned, for the time being everything else must be subordinated to the fight against dire poverty which, in his view and that of his aides, will entail a massive transfer of resources from the more productive parts of Argentina to the least.

Farmers are already up in arms. Alarmed by the government’s determination to deprive them of a large chunk of their prospective earnings, they are threatening the government with a repeat performance of the 2008 rebellion against Cristina Fernández de Kirchner’s administration. For blatantly ideological reasons, that particular government did a great deal of harm to the only part of the economy that is internationally competitive.

Businessmen big and small are also frightened by what they see coming towards them. They think it is ridiculous to expect them to produce more if they are ordered to inc r e a s e t h e i r wage bills, prevented from firing those employe e s t hey consider superfluous and must shoulder a tax burden that is far heavier than in other countries at a similar stage of development.

Though it is widely agreed that here the woefully-inefficient public sector is far too fat, the Peronist government does not propose to slim it down until the economy is roaring ahead at such a pace that people who are currently employed by the State find it easy to get jobs elsewhere. The likelihood of this happening any time soon is approximately zero. So if public spending is to come down, it will be at the expense of pensioners who get more than the bare minimum; the Peronists reacted with fury to Mauricio Macri’s decision to change the guidelines for future payments, but now they are back in power they think he was much too generous.

The government is already being accused of waging an economic war, in the name of “solidarity” and the pressing need to alleviate the hunger its spokesmen say stalks the land, against the 40 percent who voted for Macri. Those who think this way point out that the former president did remarkably well in relatively prosperous areas of the country such as Córdoba, but lost by a wide margin in the Buenos Aires Province slum belt and in backward northern places like Formosa. Ironically, before the elections, Macri himself was regularly accused of neglecting his middle-class “base” in what proved to be a futile attempt to get the poor onside by ladling out benefits and financing public works designed to make their lives a bit better. Needless to say, none of this prevented his foes from treating him as a stony-hearted mogul who was congenitally incapable of sympathising with the many people who found it desperately hard to make ends meet.

Fernández may deny that he has it in for the farmers, businessmen and those members of the bourgeoisie who, by Argentina’s threadbare standards, are thought to be comfortably off, but the belief that his economy policy is driven by ideological and social prejudices identical to the ones Cristina so eloquently expressed when in office threatens to have unfortunate consequences. If the farmers go on strike, there will be far less money for politicians to spend. And if businessmen simply concentrate on surviving, as they probably will, the economy will become even more lethargic than it has been since last year’s run on the peso forced Macri to put an end to “gradualism” and concentrate on pruning the financial deficits.

A strong moral case can be made for putting first the basic needs of the large number of poverty-stricken people who have come to depend on public spending. Fernández and his advisors have bolstered it with an economic rationale; according to them, higher consumption by the poor would give business a boost and therefore make the economy grow. To a limited extent, things could work out that way, but for the country to make headway in the world it would have to produce and market at accessible prices rather more than the basic items the government has in mind.

Most economists and, it would seem, President Fernández, understand that for Argentina to get out of the hole she has dug herself into she would have increase her exports, attract far more tourists from abroad, induce people to save more whether in dollars, pesos or, as here is traditional, real estate, keep the money supply under control and regain the trust of foreign investors. Up to now, all the government has done is to discourage the farmers who are responsible for over two-thirds of what the country makes from exports, slap what is in effect a big tax on foreign tourists, make it even harder for people or businesses to save money, toy with the idea that printing money could be helpful and tell creditors they should come back a couple of years later if they want to get anything back. It is therefore unsurprising that, despite the warm hopes aroused by Fernández’s soothing rhetoric, outside Kirchnerite circles pessimists are rather thicker on the ground than optimists. Perhaps the well-respected economist Guillermo Calvo overstated matters when he said the country in “a terminal state” – that is to say, on its last legs – but many agree with him and that alone could be enough to push it over the edge.

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James Neilson

James Neilson

Former editor of the Buenos Aires Herald (1979-1986).


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