Argentina: time to put an end to country’s legendary populism?
DS Navarro Castex
Treinta a?os de experiencia en derecho empresarial, brindando asesoramiento integral a clientes de todo el mundo.
by Alberto Navarro
1.???????????End of fourth?Perón-Kirchnerism cycle. The last one?
Both local and international press these days does not cease to point out the enormous number of mismanagements caused by President Alberto Fernández′s administration, truly under the command of party current leader, Cristina Kirchner, whose faction has controlled the centenary political party of General Perón in the last couple of decades.
Due to its absolute lack of political project, policies and achievements, this fourth?kirchnerist?government seems to have zero chances of remaining in power after next December 10. According to public opinion measurements, rejection reaches almost 80% of the population.
The question as to?who is to be the chosen one?to lead Argentina following the forthcoming presidential elections is far from being solved yet. Both here and on Wall Street many are wary of ascendant Javier Milei, an?upstart?economist, seen by many as an extreme right-wing populist, but who is growing day by day in the polls thanks to his speech?“against the political caste”. From being an unknown politician just two years ago, Milei now aspires to have a place in the?ballotage, being that there is no journalist who does not invite him to speak on radio or television, or poll that does not record his incessant advance in voting intentions. In addition to having conquered the youth of all classes and social conditions with his?libertarian?message, Milei is gaining more and more support from prestigious businessmen, as well as from lower-middle working-class sectors that in other circumstances would have voted for Peronist candidates. His success so far is the best demonstration that many Argentine voters are fed up with so much failure and looking for a?radical change?that traditional politics never gave them.
Meanwhile, the heirs of former President Mauricio Macri (2015-2019) are disputing the party leadership of?Juntos por el Cambio, a political coalition with the best chances of returning to power. Whether it is one or the other, he or she is sure to be a good candidate.
The truth is that whoever finally governs Argentina will certainly not have an easy time since the accumulated economic and social inheritance will be heavier than ever, while the?kirchnerist?hordes will once again do their utmost to boycott any attempt at structural reform, as they did at the time with the reforms then attempted by President Macri. Fortunately, now the situation could be different considering that since the last parliamentary elections (2021) the sectors related to Cristina Kirchner lost representation and everything indicates that after the next elections they will continue to lose it. The challenge is also that the circumstances themselves are to transform Kirchner′s supporters into a minority to whom the rule of law becomes applicable as it does to everyone else.
2.???????????The conditions?sine qua non?to start getting the country back on its feet.
First and foremost, the thing that seems imperative to put the mess in order will be the?urgent and abrupt?reduction of?unproductive?public spending, without which it will not be possible to achieve fiscal balance and lower inflation. Everything else depends on this.
Today, the tax burden on taxpayers reaches 33% of GDP, a high figure compared to the average of our neighboring countries, while our elephantiasic state does not provide minimum quality of public health, access to justice, public education and security. Every time fiscal revenues were not enough, the country resorted to public indebtedness and when repeatedly defaulted or lost access to the international credit market at reasonable rates, then the deficit was covered with money printing, the?structural cause?of inflation, today completely out of control.
If pragmatic, almost all know that cutting off public spending will trigger the elimination of multiple political class and trade union′s privileges, as well as collide with strong corporate interests. Examples of wastage abound: loss-making public companies; energy subsidies that also benefit those who can afford utilities′ market rates; privileged pension retirements in favor of politicians or of those who have never contributed to the pension system; and an?innumerable?number of parliamentarians, national and provincial, with thousands of advisors and lavish expenditures that contribute nothing to the society welfare. Of course, there is also the granting of?social plans?for electoral purposes, a particularly delicate issue to dismantle in view of the thousands of poor families who really badly need them. Only in terms of public employment in the provinces, the wage cost has doubled in the last 20 years, as a consequence of political clientelism.
It is how in the last few years there were many voices of local governors (as in the case of Mendoza) who went so far as to propose the?secession?(independence) of their provinces in the face of the continuous demands of chronic deficits from provinces governed in a feudal style by Peronism. Better not to think about the consequences of this in the event of a contagion effect from other provinces.
If the question is then?how fast?haircuts should be made, it does not seem possible to do it now in a?gradual?way -less painful- as President Macri intended at the time: the debate?shock vs. gradualism?seems now irrelevant at this point in time given the total lack of external credit and patience of a jaded society, which seems to be asking for?fundamental reforms and now. There is notwithstanding a conditioning factor, true and tangible (although manipulated by those who?want nothing to change) which is poverty and indigence that reaches 40+% of the population, many of whom are not educated or hopelessly unprepared to enter the labor market.
So let us not fool ourselves -nor continue to fool the world: if drastic measures are not taken in such sense Argentina will continue to be a country with record inflation (7% last March and projection 110+% in the year), abrupt devaluations of its currency (over 140% just in the last year), absurd exchange controls and restrictions on capital flows that paralyze both foreign, investment and trade (FDI in 2022 was the lowest in 20 years), and with more than 150 distorting taxes, among which those on food exports stand out, to the point of paralyzing them despite the fact that they are our main source of green bucks. It is clear that leftist populisms do not get along well with agricultural producers…
An example of these high costs is symbolized by the recent ruling in New York on the YPF nationalization (main oil company) in 2012. At the time, President Cristina Kirchner presented the expropriation from the Spanish group Repsol as an “achievement for the recovery of the national energy sovereignty“. The truth is that this lawsuit may now cost Argentine taxpayers more than 20 billion dollars, a figure that exceeds the current reserves of our Central Bank by more than ten times, meanwhile the amount of public debt -internal and external- amounts to almost the country’s own GDP (approx. 480 billion dollars). The?ruling is based on the fact that the country violated YPF’s basic sections of the company by-laws dating back to 1993 when it was privatized by the Peronist government of president Carlos Menem (1989-1999)… one more way of appreciating how difficult it is to understand “what”?Peronism?is, and the different hosts it can encompass within itself: from the extreme right fascist style of 1945 to the guerrilla left?montoneros?of the 70’s; from claiming to be workers’ protectors, to destroy the culture of work.
3.???????????What could be expected.
The fourth?kirchnerist?government leaves a heavy economic and social legacy, not only to the next government, but also to the future generation of Argentines. It will take time, perhaps years, to overcome the high levels of poverty, lost economic growth and the confidence of disillusioned investors who?wrote off?the country.
Although it seems that the new president will come from former president Macri ranks, apathy and sense of hopelessness of a large part of society provide Javier Milei, as an anti-establishment candidate, with a chance to become a new political actor, all of which adds to the panorama of reigning uncertainty. It is to be hoped that both political forces, together with rational peronists, are to make Argentina a governable country with lasting state policies and restrict observance for the rule of law.
Is there room for optimism? Hopefully yes, but as long as in the first months of government, the winner presents a credible and achievable economic plan, with substantial reforms, including the material reduction of unproductive public expenditures, the elimination of absurd controls and restrictions on capital flows and barriers to foreign trade, as well as bringing annual inflation down to one digit by the end of the four-year presidential term. Needless to say, tax (simplification) and labor laws (loosening) reforms. Altogether, a?monumental?task. Likewise, counting once again on the financial support of -and stricter monitoring by- the IMF, the multilaterals and the U.S. government, whose current assistance confirms Argentina’s strategic value for the occidental hemisphere. I never liked the chauvinist phrase “God is Argentinian,?che!”, but just this once I would like to know that He, the Almighty, walks around with the “10 of Messi” shirt on…
Just to mention a few, Argentina has enormous potential in sectors such as infrastructure, energy, mining, tourism, and the agricultural exporting one. Nowadays it produces half of cars as compared with the 90’s -just by returning to those levels the Treasury would collect an additional 1% of GDP. Not to mention the “Vaca Muerta” shale oil and gas reserves (Neuquén province), which are presented as “another?humid pampa“, although waiting for investments that have not yet arrived due to the lack of confidence. Not to mention our lithium reserves, the second in the world.?It’s only?a matter of trust, as great Billy Joel sings…
But none of the above could be successfully achieved without prioritizing?education, at all levels and strata of society, without which Argentina will have no future as a Nation. The brevity of this paragraph is inversely proportional to the importance of the need to promote it, from cradle to grave, as a condition for all aspirations.
Argentina needs to achieve a lasting, sustainable and?peaceful?change, banishing populist practices of the last 80 years that caused investors to include us in their bad books. The maturity and patience of Argentine voters will be put to the test this year. Many will be watching from the outside. Hope is never lost and even less when we believe to have hit rock bottom and there is light at the end of the tunnel.??????????????????????????????????????????????????????????
May, 2023.
? 2023
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