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OPINION AND ANALYSIS | 08-04-2022 23:30

The ‘war’ against inflation – an Argentine classic

Inflation has now become the key battleground for an embattled government that was naïve enough to declare a war against it as the world observes the brutal showdown between Russia and Ukraine.

While rumours of a potential divorce between Alberto Fernández and Cristina Fernández de Kirchner and resignations that would spark 2001-like institutional implosions have receded, the spectre of an uncontrollable inflationary spiral has once again placed in doubt the proper culmination of the president’s mandate. It would be — at least — the third chapter of a recent story that includes Fernando de la Rúa and that fateful 2001 crisis and Raúl Alfonsín back in 1989 during the last bout of Argentine hyperinflation. The big difference: both of them were members of the Radical Civic Union (UCR) and were succeeded by Peronists who “saved the day,” earning the Radicals the fame of being incapable of governing the country, at least since the return of democracy in 1983. Now it’s a pan-Peronist coalition led in some sort of way by the Fernández-Fernández tandem, along with Renewal Front leader Sergio Massa, which is walking close to the edge as inflation remains stubbornly high. Indeed, one of the major political victories of the Mauricio Macri administration was becoming the first non-Peronist administration to complete its mandate since the return of democracy.

The obsession with a potential interruption in constitutional rule is a constant in a country that until 1983 hadn’t managed to secure more than a few consecutive years of democracy before falling back to a military dictatorship, and it appears overly pessimistic. A big part of it is fuelled by the ‘War of the Roses’ being fought by the president and his veep that has become a very real obstacle for governability since things began to get tough for this government. President Alberto was picked to lead the Peronist front against Macri via Twitter because of his moderation, which contrasted with Cristina’s virulence and could attract other Peronist sectors to a coalition that came to be called the Frente de Todos.

Much like their predecessors in power, Cambiemos (today re-branded Juntos por el Cambio), the electoral coalition was hugely successful initially but turned quite the opposite when it came to running the convoluted and complex Argentine state apparatus. During Macri’s four years the issues were resolved by a certain verticality that the founder of the PRO party executed at the expense of other members of his coalition, the UCR and Lilita Carrió’s Civic Coalition. Under the current set up, Alberto is seen as incapable of standing up to Cristina, who picked him and brought the votes to win the 2019 election under her arm. A tremendous loss in the 2021 midterm elections marked the point of inflection in a political marriage that has soured probably past the point of no return. Remember, though: in Argentina, everything is possible.

The yearning for a rise of Albertismo that would face off with Kirchnerism has been spoken about since before Alberto, First Lady Fabiola Yánez and the presidential canine Dylan took possession of the official residence in Olivos. It was encouraged both from within and outside the governing coalition, particularly after Fernández de Kirchner ordered ministers who responded to her to tender their resignation in the aftermath of the PASO primaries. Alberto, thus far, has resisted the urge to take the Kirchnerite bait and jump into the ring for an ultimate showdown. It’s what those close to Macri believe they need to get him back in the presidential race, with the fracture of the governing coalition resulting in another painful economic shock-cum-social revolt.

Cristina celebrated the first sovereign debt restructuring that Economy Minister Martín Guzmán signed with private creditors. But she quickly lost faith in Guzmán, Alberto, and the rest of the economic team, including Productive Development Minister Matías Kulfas, Labour Minister Claudio Moroni, and Central Bank chief Miguel Ángel Pesce. The gruesome defeat in the midterm elections that saw the governing coalition lose some 40 percent of the vote attained in the 2019 presidential race convinced CFK that the president was done. Her first born, Máximo, resigned from the presidency of the Frente de Todos’ caucus in the lower house Chamber of Deputies and since then, political sectors responding to mother and son have gone on a communications battle against the president. They voted against the all-important deal with the International Monetary Fund, a major political win for Alberto and Guzmán, only after they knew the government counted with enough votes to pass the bill. Tough words, pragmatically timed.

Inflation has now become the key battleground for an embattled government that was naïve enough to declare a war against it as the world observes the brutal showdown between Russia and Ukraine. A global bout of inflation has finally taken hold, with rich countries like the United States seeing 40-year highs. In that context, the government’s response to runaway price increases has been absolutely ineffective. Indeed, official sources admit the IMF deal will necessarily generate high inflation during this early stage as a reduction in energy subsidies to tackle massive fiscal deficits will see gas and electricity prices rise aggressively. Furthermore, the structural lack of dollars means import restrictions that will reduce industrial output — and limit the potential economic recovery — along with possible shortages for certain products, which is also inflationary. The need to import energy in a world at war also hits at the heart of the IMF programme, with the upside of rising commodity prices fuelling a surge in agricultural export figures. To many, the “inflationary tax” is a “good thing” for this government in that it will be the only way the fiscal maths will make sense as internal costs rise at a slower pace than tax income. Short-term pain and long-term pain.

Being incapable of controlling inflation is a curse that has followed at least the previous three administrations (Cristina’s second mandate, Macri, and now Fernández).The latest figures released by the INDEC national statistics bureau show prices rose 52.3 percent over the previous 12 months in February and unofficial estimates for March could show a substantial worsening of the monthly statistic. The Kirchnerites, which have pushed for the use of price controls and export bans that have proven ineffective, will be looking to the next figures to call for Guzmán’s head and a major cabinet reshuffle. Alberto is in a pickle, he’s shielded his Economy Minister from Kirchnerism’s constant attacks and is currently empowering him and the rest of the economic team to lead the “war against inflation.” Yet it appears unlikely that they’ll be able to secure a “victory” in the short term, giving Kirchnerism and the opposition ammunition to call his government a failure.

If there’s one thing that has characterised Cristina, Macri, and Alberto’s wars against rising prices, it is a lack of credibility in their respective governments. Another thing is money printing. Oh, and currency controls. We could go on… until an administration can count with enough socio-political support to put the country on a rational economic and political path, then it will fail in its attempts at controlling inflation, whatever their ideology.

Agustino Fontevecchia

Agustino Fontevecchia

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