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OP-ED | 09-03-2024 06:30

The Pact of May (or maybe?)

This month and the next stand to be the eye of a perfect storm – a rare moment in the always abnormal Argentine economy which is a nightmare for spenders and savers alike.

In the first 100 pre-pandemic days of the Alberto Fernández Presidency, which now seem almost a previous century, the main thrust was to relaunch the country via the creation of a socio-economic council based on the traditional troika of the state, business employers and trade unions (which never happened). Nearing the end of his first 100 days in office, President Javier Milei has staked his bets on a pact along federal rather than corporate lines by convoking provincial governors to sign 10 consensus points in centrally located Córdoba on the national day of May 25. The number coincides with the 10 points of the Mauricio Macri Presidency five Mays previously but little else – Macri’s 10 points were highly specific concessions in a vain bid to avert electoral disaster, not broad assertions of free-market philosophy. Do these differences offer any promise of a different outcome?

The absence of businessmen and trade unionists from the table will ensure a freedom from sectorial vested interests permitting a more general overview which would gladden the heart of a professional economist like Milei but this does not guarantee any readymade consensus from the governors – if that existed, the modernisation of federal revenue-sharing stipulated within two years of the 1994 constitutional reform would have been implemented long ago. Not only are there colliding regional interests but last year’s elections resulted in a greater political and ideological fragmentation than ever – four governors have already opted out. Yet with May 25 still 11 weeks away, we shall know long beforehand whether it is going anywhere – whether the return of income tax (of which the provinces stand to collect 70 percent) will do the trick in smoothing parliamentary passage of at least some fragments of the frustrated omnibus bill on the basis of a working arrangement with the governors.

But all that lies in what seems a distant future while Alberto Fernández and Macri are has-beens (the former rather more than the latter) – this is now. This month and the next stand to be the eye of a perfect storm – a rare moment in the always abnormal Argentine economy which is a nightmare for spenders and savers alike. Months in which peso interest rates are little more than half inflation while the dollar yield drops by a similar percentage make it a moot point whether the saver loses more by investing in fixed-term deposits or greenbacks. Real wages have now fallen more than 20 percent from the start of 2023 while pensions (doubled in 2023 in a year when prices trebled) have suffered even more. Shrinking consumer markets and frozen public works doom shopping centres, factories and construction companies alike to recession.

Sacrifice almost across the board (with little sign of the caste bearing the brunt despite some token gestures) in what Milei has consistently forecast to be the period of teething troubles in his rebirth of Argentina as reality bites. But the almost universal hardships also need to be divided into what may be collateral damage from this point in the cycle and more permanent harm. In the latter category at least two categories stand out – pensioners and small businesses.

Pensioners have made by far the biggest contribution to the fiscal surplus achieved at the start of this year – over a third of the cuts, almost equal to the three other main austerity targets combined: energy and transport subsidies, public works and transfers to the provinces – but this in no way exempts them from further punishment. The irony of the situation is that this spectacular saving of almost a trillion pesos was no brainwave of Milei or his Economy Minister Luis Caputo but the result of cynically continuing the woefully deficient updating system of Alberto Fernández. Left to its own devices, the youthful libertarian movement might well be even more extreme – note has duly been taken of over 60 percent of the youngest end of the population living below the poverty line but only 15 percent of the oldest since a guaranteed pension offers a minimal safety net far superior to the uncertainties of informal employment and the young are the future.

As for small businesses, shrinking sales may or may not be a temporary cyclical problem but the seven-digit electricity bills looming from the end of subsidies could end up driving most of the endless rows of small shops along this city’s avenues out of business.

But everybody should brace themselves for the next two months sure to be tough with May both a month and a verb.

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