The Economy Ministry, under any recent Argentine administration, is most definitely the hottest seat in the Cabinet, with the highest of responsibilities and the lowest of chances of success. There’s always a tension regarding the relative power of the head of the portfolio, whether he has any actual independence from the political project being led from the Casa Rosada and whether he has the technical and emotional endurance to “do what has to be done” – something every economist in the country seems to know precisely, despite decades of failed policymaking and seeming to have “tried every trick in the book.”
Yesterday at press time, the going rumour was Martín Guzmán’s latest threat of resignation, putting increased pressure on the young Columbia University economist and his crusade against the “macroeconomic imbalances” that a powerful faction within the ruling Frente de Todos just simply doesn’t believe in. Faced with the uphill battle of winning this year’s midterm elections while caught inside a stagflationary hurricane that is made even worse by a global pandemic, President Alberto Fernández is torn with pleasing the “largest shareholder” in the coalition (Vice-President Cristina Fernández de Kirchner), and moving forward with his minister’s plan to “stabilise” the economy once and for all. Much like the ongoing showdown with Buenos Aires City Mayor Horacio Rodríguez Larreta, where political calculations outweighed the Covid-19 outbreak, Fernández could be pushed into committing another painful unforced error.
At the heart of the issue is a question of power, and not just Guzmán’s policymaking power, but Alberto’s capacity to lead his administration in the face of dissidence from within. And there’s a second question about power too, but in this case it’s the power to make the right decision while trying to guess what his second-in-command — at least formally — wants him to do, even if she doesn’t verbalise it.
On Friday, sources within the Economy Ministry informed different media outlets that the government had approved two successive increases in electricity prices, starting with a nine-percent hike in May. The same sources indicated Guzmán had asked Energy Subsecretary Federico Basualdo for his resignation after holding a meeting with President Fernández and Cabinet Chief Santiago Cafiero. Within minutes, multiple national outlets received information from sources within the government aligned with the hardline Kirchnerite wing denying Basualdo’s resignation, adding that a one-time eight-percent increase had been approved, which goes in line with this government’s mission to “recover the purchasing power of the working class.” It goes without saying that if a minister is unable to dismiss an underling, a third-line official within his hierarchical structure, it’s the minister who should be abandoning ship. At press time, neither resignation was confirmed.
The tension between reducing the fiscal deficit in order to stabilise the economy and “putting money in people’s pockets” in order to win the election was presented formally by Fernández de Kirchner back in December. In an end-of-year rally alongside the president, Buenos Aires Province Governor Axel Kicillof and number two Verónica Magario, son and deputy bloc leader Máximo Kirchner, and Lower House Speaker Sergio Massa, CFK told her followers it was necessary to “align” wages, pensions, utility bills and prices. It was taken as a message to Guzmán — and Alberto — that austerity wouldn’t be tolerated in an electoral year. A few months before, the Economy Ministry had passed a budget that included a provision to keep energy subsidies as a percentage of GDP steady, meaning a real contraction after accounting for inflation. Guzmán’s Energy Secretary, Darío Martínez, had explained utility prices wouldn’t remain frozen, but would move in tandem with inflation, and would be differentiated according to the income level of the end-user. Guzmán was estimating inflation, and the pace of devaluation, to be in the order of 29 percent. Reducing energy subsidies is a sine qua non condition to stabilise the Argentine macroeconomic situation, as they are one of the prime cases of the runaway fiscal deficits which have led to excess money printing, feeding back into dollar-demand and the generation of a vicious cycle that has to be broken. Other conditions include the restructuring of the sovereign debt with private creditors and the International Monetary Fund, and an increase in Argentina’s competitiveness, in order to increase production and exports.
But Cristina said no. From within the ranks of Kirchnerite think-tank the message was clear: utility price hikes could be nowhere near the 20 to 30 percent range Guzmán envisioned unless the Frente de Todos wanted to face Mauricio Macri’s electoral fate. Increases would be capped at around eight or nine percent. Inflation was caused by private-sector speculation, so the recipe was to impose restrictions and controls, freezing prices and cutting imports and exports in order to “decouple” local and international markets. The Kicillof playbook, which would be executed by Commerce Secretary Paula Español. Energy prices would be controlled by Basualdo on the one hand and Federico Bernal at the Enargas natural gas regulator on the other.
Guzmán has already been blocked in his attempt to secure a deal with the IMF. “Wait until after the election,” he was told, given the politically unpalatable IMF programme would include some level of belt-tightening that part of the Frente de Todos would not tolerate. He had also been locked in a battle with Central Bank chief Miguel Ángel Pesce until late last year when, after a massive run on the peso, he was given the keys to Argentina’s monetary policy. Now, he’s being told he can’t reduce energy subsidies and work on deficit reduction, while being snuffed by a third-line official who responds directly to Fernández de Kirchner.
Only last year, Guzmán appeared to have won CFK’s favour after successfully restructuring the sovereign debt with private creditors. He advised her directly on several issues, having flown directly to El Calafate in Patagonia where the vice-president has a private residence. He received a standing ovation from the country’s major CEOs after laying out his economic plan, something few Peronist Cabinet members have ever received in Argentine history. He became the government official with the highest approval rating, despite being a soft-spoken introvert. That’s when the friendly fire began, forcing President Fernández to express his public support on more than one occasion. According to journalist Roberto García, writing in Perfil, one of Guzmán’s main adversaries is none other than Kicillof, Cristina’s protégé.
Whether it is sound economic policymaking or politics to raise energy prices in order to lower subsidies during a stagflation, a pandemic, and an electoral year is debatable. Yet, it’s not Guzmán’s authority that’s really at stake, but Alberto’s. Whether the president has the authority to choose his Cabinet and move forward with his intended plan has been called into question since the day he was fingerpicked to lead a pan-Peronist coalition. And ever since he began to radicalise his positions, his credibility, and public standing in opinion polls, has fallen aggressively.