Wednesday, July 24, 2024

OP-ED | 13-08-2022 06:52

Credibility gap the widest of all

Massa is widely assumed to model his ambitions on Brazil’s Fernando Henrique Cardoso but even subordinating all else to that goal does not automatically make his policies more predictable.

If French premier Georges Clemenceau famously said: “War is too important to be left to the generals,” many people here today might apply that maxim to the economy, hailing the replacement of the professional economists Martín Guzmán and Silvina Batakis with the out-and-out politician Sergio Massa at the helm of a magnified Economy Ministry. While Clemenceau’s logic is already debatable within its original context (countless military blunders on the field of battle notwithstanding, not only Clemenceau himself but even such legendary names as Abraham Lincoln and Winston Churchill ended up on the right side of history by winning their wars yet also committed several needlessly costly mistakes along the way), it becomes even shakier when applied to the economy.

Few enough people would trust politicians even within their chosen sphere – thus Charles de Gaulle as Clemenceau’s successor guiding French destinies nearly half a century later reworked his phrase to read: “Politics is too serious a matter to be left to the politicians” – yet granting them economic control carries numerous extra dangers. There are many variations on this theme but one basic and apparently inescapable difference between economists and politicians is that they operate within different time frames – while the economist follows the bumps of the business cycle and seeks to smooth them with anti-cyclical policies, the democratic politician is tied to the electoral timetable at the expense of longer-term considerations.

Massa is widely assumed to model his ambitions on Brazil’s Fernando Henrique Cardoso (who advanced from economy minister to two-term president via success against inflation) but even subordinating all else to that goal does not automatically make his policies more predictable. Which focus pays better electoral dividends – giving priority to this year’s crisis or next year’s elections? The kudos of a solid exit from crisis at the cost of sacrifices whose fallout extends into next year (and perhaps forecloses his political future, making him more of an Eduardo Duhalde and Uruguay’s Jorge Batlle than a Cardoso)? Or limiting the austerity enough to permit an artificial prosperity in mid-2023 while rolling over the crisis as far as possible? And is the choice entirely his? Massa’s big advantage over Guzmán and Batakis is his vastly superior political clout but it is limited – always subject to the veto powers of Cristina Fernández de Kirchner, he also has far more of a blank cheque for this year than next. 

This dilemma can be seen in his biggest success of the week – postponing the payment of some two trillion pesos of debt via a novel dual bond (there have been bond swaps all century for dollar debt but applying them to peso debt is a new turn of the screw). Even Massa himself was not expecting the dual bond’s 85 percent acceptance, setting a far more modest target of 60 percent (playing it safe with 57 to 58 percent owed to the public sector) – its attraction lay in offering creditors the choice of index-linked or dollar-linked, whichever gives them more. This obviously offers enormous relief for the here and now while ensuring that next year’s debt is that much huger, thus augmenting the risk of an electorally untimely explosion.

Identical risks underlie the strategy of pressuring companies to advance 15 to 25 percent of next year’s taxation – defusing a huge bomb this winter while approaching an election year with less revenue or less credibility if the advances are ignored and the same or more taxation demanded. Perhaps the gamble can succeed – if confidence can somehow be regained with inflation and public spending reduced, that advanced percentage of taxation might not be needed. But it is difficult to generate a confidence shock while making so much effort to disguise austerity (such as presenting the routine quarterly pension hike of an inadequate 15.5 percent as a bonus). Not that there is much austerity in sight – Massa has announced a bigger crackdown on public service subsidies than the Batakis package by adding an energy consumption cap to segmentation but has not renewed most of her other brakes on public spending. Even the huge sums gained by subsidy cuts, peso debt rollover and tax advances do not seem enough to bring the gigantic fiscal deficit within the limits of the current money supply, never mind the continuing drainage of Central Bank reserves amid record exports.

The distance between official and parallel exchange rates and the grieta rift of political polarisation are both impossibly vast but perhaps for Massa the credibility gap is the widest of all.


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