Argentina’s Mauricio Macri and his coalition have reasserted their position as the party of government following last month’s midterm elections. The first conservative to win the presidency since democracy was restored in 1983, his supporters won majorities in thirteen out of 23 provinces. They have also taken charge of five of the most populous districts in the capital Buenos Aires.
Last weekend, Argentina experienced something of a shock as presidential candidate Daniel Scioli of the governing Peronist party was forced into an historic second voting round by the conservative mayor of Buenos Aires, Mauricio Macri.
Following twelve years of Kirchnerismo — the most radical form of the Peronist umbrella movement to govern to date — Argentina is set for a change in political direction. The extent and speed to which the country’s political course shall be altered, though, depends on the outcome of the presidential runoff next month. Read more “Argentina’s Right Gets Close to Unseating Peronists”
Britain will boost its defenses in the Falkland Islands, Defense Secretary Michael Fallon said on Tuesday, as Argentina was reportedly considering to lease bomber planes from Russia in return for beef exports.
Argentina still poses a “very live threat” to the British-ruled islands, Fallon said.
As President Cristina Fernández de Kirchner comes to the end of her second and final presidential term, Argentina’s October elections could bring a new party to power for the first time since the 2001 economic collapse. Conservative businessman Mauricio Macri leads the polls after a 12 percent upsurge in the past year.
After Argentina defaulted on its debt last year for the second time in less than two decades, all the major parties acknowledge a need for economic reform.
The “tragedy of Argentina” is not so much one of unfortunate economic circumstances as the failure of one particular ideology which the country refuses to shake off — Peronism.
The Economist this week studies the causes of the country’s century of decline as Argentina looks set for a repetition of the 1998-2002 financial crisis.
The newspaper notes that in the early twentieth century, the Argentinians were among the richest people in the world. Their income was 92 percent of the average of sixteen rich countries now in the Organization for Economic Cooperation and Development. In the four decades leading up to 1914, growth had averaged 6 percent per year. But, as The Economist puts it, “It never got better than this.” Today, income per head of the population is only 43 percent of those same sixteen countries.
One underlying cause is that even when Argentina was booming, it was overly reliant on commodity exports. It failed to educate its masses and build an industrial base of its own.
Argentina is still the world’s largest exporter of soy oil and a major supplier of corn and soybeans. High demand for agricultural products from Asia, especially China, fueled the country’s economic expansion in recent years. When growth there stalls, so does Argentina’s.
A vibrant economy could absorb such a bump. Argentina’s economy was still expected to grow 5.1 percent last year, after a disappointing 1.9 percent in 2012 — assuming these figures, unlike Argentina’s official rate of inflation, are accurate. But in a misguided quest for economic independence, the country has enacted numerous policies that hamper trade, the most recently example being a mandate from President Cristina Fernández de Kirchner that forces companies that bring goods into Argentina to match their value with exports.
This has forced a carmaker like Germany’s BMW to export Argentine rice. Hyundai sells Argentine soy flour in Vietnam. Porsche agreed to export olives and wine.
Goods are nevertheless backing up at the border as officials try to slow the impact of expensive imports. Trade on a major grains exchange has dried up as farmers stockpile their soybeans rather than taking pesos which are rapidly decreasing in value.
The government has deployed price caps and export curbs to try to reduce inflation, unofficially close to 25 percent. It has also imposed capital and currency controls, including a ban on dollar purchases — to little avail. The peso trades on the black market at a discount of more than 40 percent to the official exchange rate.
Argentina could have used the revenue from commodity exports to modernize its infrastructure and spent its time in the sun to thoroughly shake up its political system. Instead, the proceeds were used to pay for education, public housing and welfare. When growth inevitably stalled, as it had soon after Juan Perón first became president in 1946, the dictatorial tendencies of the political movement that is named after him, just as inevitably, surfaced again.
Perón jailed political opponents; Fernández persecutes economists who dare publicize inflation numbers that deviate from the government’s. Perón nationalized railways and utilities; Fernández nationalized Aerolíneas Argentinas in 2008 and relieved Spain’s Repsol of its majority share in the Yacimientos Petrolíferos Fiscales oil company in 2012.
Disregarding not only property rights but constitutional limitations on her executive power, Fernández toyed with the notion of seeking an unlawful third presidential term. She appears to have shelved those plans since her party nearly lost its majority in the Senate in last year’s election — for now.
The problem is not just one of poor leadership. Argentina’s political failures are institutional. “Short-termism is embedded in the system,” writes The Economist. “Money is concentrated in the center and the path to power goes via subsidies and splurging.”
Redistributive policies may help the poor but Peronism’s abiding confidence in the state’s ability to be an instrument of “social justice” has all too frequently led to thuggish government behavior when autarkic policies failed to produce the promised economic gains.
To escape this trap, Argentinians themselves must change. The Economist recognizes this will be difficult. “That is partly because the experience of the 1990s discredited liberal reforms in the eyes of many Argentines.”
At the time, President Carlos Menem tamed inflation, privatized industries and pensions and pegged the peso to the dollar. This restored confidence and brought back foreign investment and growth but when the dollar started to rise in value, and financial crises in East Asia, Mexico and Russia dampened growth globally, Argentina ended up in a depression.
But it is also difficult for Argentinians “because reform requires them to confront their own unprecedented decline. No other country came so close to joining the rich world, only to slip back. Understanding why is the first step to a better future.”
Despite the Arab Spring, it was not a Middle Eastern country which grabbed biggest headlines for resource nationalism in 2012. It was Argentina, where populist President Cristina Fernández de Kirchner proposed a bill on April 16 to renationalize Yacimientos Petrolíferos Fiscales (YPF), the country’s largest energy company. Her idea was subsequently approved in early May 2012 by the Argentinian legislature.
The move sent shock waves across the global energy industry, the desks of geostrategists and political risk consultants. Leaders from Europe to Mexico rushed to criticize the move. Kirchner cited the need to keep energy prices manageable for Argentinians but at that time, the price of gasoline within the country was actually less than the price at the pump to be found in some of its neighbors.
The renationalization of YPF, at the time largely owned by Spain’s Repsol, came at a time when some geostrategists were predicting a shift in global energy politics from the Middle East to the Americas. North and South America are home to the largest oil resources outside of the Middle East and North Africa. Read more “Argentina Might Lead Wave of Resource Nationalism”
Residents of the Falkland Islands voted overwhelmingly to remain an overseas dependency of the United Kingdom in a referendum on Sunday and Monday, defying increasingly aggressive Argentinian claims of sovereignty over the islands which are situated some five hundred kilometers off the Patagonian coast.
The streets of Buenos Aires were crowded on Thursday night with was called the largest anti-government demonstration in a decade. Hundreds of thousands of residents of the Argentinian capital took to the streets to protest the economic mismanagement of President Cristina Fernández de Kirchner’s administration.
The protest was sparked by skyrocketing inflation, now estimated at 25 percent, a recent power outage for which the government predictably blamed private enterprise rather than its own price controls, and suggestions that Kirchner may seek to amend the Constitution to serve a third term.
Just 30 percent of Argentinians approve of their president’s job performance, according to recent polls, a 10 percentage point drop from July. Voters blame Cristina Fernández de Kirchner for the slowdown in economic growth, skyrocketing inflation and rising crime rates.
Kirchner, who won reelection in October with 54 percent of the vote, has enacted numerous protectionist measures that benefit her allies in the labor unions but undermine the Latin American country’s overall competitiveness.
She has had to cut back on popular subsidies and welfare spending in order to achieve a budget that will almost be balanced this year. Some $18 billion in government spending is still allocated to subsidies, however, ranging from electricity, gas, public transport and water to free laptops in schools. Read more “Argentina Inflation Skyrockets, Kirchner’s Popularity Slumps”