Facing a wider (and wilder) world

A public sector paid for months in staggered trickles by an insolvent provincial government has reacted with protests blocking the private sector whose work is the province’s other source of income. Money from outside is simultaneously the solution and the problem – Chubut’s current plight is due to a previous dollar bond with preferred creditor status (i.e. its obligations came ahead of all else), which crowded out the provincial revenues for salaries etc. once devaluation took wing. In short, a complex mix of paradoxes with tragic consequences.

Nationwide the crisis is not so extreme but acute enough – inflation, poverty and unemployment all on the rise; fuel prices out of whack with the rest of the world; fettered exchange markets and a fiscal balance moving further away from “zero deficit” by the day. These problems have been present or at least latent all along but were previously kept at bay by external financing – that tap now seems closed with the virtual certainty that the latest International Monetary Fund tranche of US$5.4 billion (due last weekend) will not be forthcoming until Argentina’s next government is defined (if then).

The problem is obviously economic but the crucial need for money from outside (with no chance of incurring new liabilities until the current debt overhang is resolved or at least renegotiated) makes foreign policy almost as important. It would be premature to rule out the previous channels for a potential Alberto Fernández presidency (or a second Mauricio Macri term) before they have even started. Both men have their chances and their ideas – even if some wings of his coalition mutter default without actually using the D-word, Fernández has some definite proposals for creditors based on such concrete precedents as the 2003 Uruguay or 2015 Ukraine bond swaps, while Macri has a proven track record for attracting money from abroad.

Nevertheless, it is a hostile world out there with money hard to come by in general as negative interest rates take hold and for Argentina in particular (and perhaps especially Alberto Fernández). The problem here is not only Argentina’s frustrating history but today’s world – thus the people running such key partners as the United States and Brazil (Donald Trump and Jair Bolsonaro) do not form a club into which Fernández could easily fit. This pair also poses difficulties for options other than credit lines – the idea of export-led growth as an alternative dollar route (for which Macri shows rather more enthusiasm than Fernández) is hampered by the damage done by Trump to international trade while Bolsonaro’s “Braxit” talk is threatening a Mercosur-European Union agreement already jeopardised by Vienna recently joining the objections of Paris and Dublin.

No wonder Fernández is reportedly looking to China with its multi-trillion reserves for a bailout – or at least that is the fear of Eduardo Eurnekián who warned him this week against this not so easy way out. The airport tycoon (just a couple of months away from his 87th birthday) speaks from ample experience. If Chinese aid in Africa or Venezuela is any basis, the oil which Fernández wants to keep out of the clutches of the multinationals (as he said in Spain) would end up in China. At this stage it is not possible to do more than underline that what seem to be purely economic problems also have diplomatic aspects – anything more would be jumping the gun. We do not yet know who the next president will be and if we did (as most pundits insist), we do not know his choice of foreign minister – a far from secondary factor.

But these are not the only things we do not know – in conclusion, a warning against either extreme optimism or pessimism. Too many people are assuming that removing Macri from the presidency will have the same magical effect as installing him there was assumed to have four years ago – the problems are huge. But huge as they are, this country has had even more devastating crises like the 1989 hyperinflation or the 2001-2002 meltdown and bounced back strongly under fairly mediocre governments (even if it took a year or so). The lesson here would be not to assume that everything depends on the quality of the government or underestimate the potential of this country. Not that such reflections do anything to feed those scavenging for food or pay salaries in Chubut.