I’ll explain why Argentina risks default (again)
The risk of a new default by Argentina threatens the stability of the country and of world finance. The study by Livio Zanotti, author of ildiavolonmuoremai
Powerful downpours have finally given new breath to Buenos Aires, semi-asphyxiated by 45 degrees in the shadow of this austral summer whose overabundance of ozone can be felt under the teeth. But just a little frightened by Covid which does not stop filling hospitals and causing victims. From the upper districts on the river to the intensive and green-free ones towards the south, beyond the avenue Cordoba, the people who remained in the city extended their stops at the coffee tables, the fundamental place of the two national sociological myths: the (upper) middle class and the people. What changed were concerns and moods in their respective speeches, with a barely perceptible reduction of the skepticism that has always been widespread in both environments; today exacerbated by the grieta that deeply fractures the country even in the perception of its own daily reality.
Discreet congratulations and a few quick greetings with a clenched fist but mouth cover lowered on the neck at the tables of the traditional La Biela, at Recoleta, for the interruption of the prolonged drought that threatened the crops of modern and powerful Argentine agriculture (third exporter in the world: oilseeds , citrus fruits and meat; essential source of hard currency for the public treasury). "Fortunately, there are still no taxes to pay in the rain …" someone argues. In all likelihood, landowner or shareholder of the countless financial pools that associate minor producers or savers ready to invest by purchasing the crops in advance and then marketing them at the moment deemed most advantageous. The large landowners do not go to bars, however exclusive they may be; and these days they are in the pools of their estancias or on some tropical beach.
While the good wishes that are frequently heard exchanged in the popular bolices refer to the black-outs that punctually leave tens of thousands of homes and businesses in the dark every summer, stopping the lifts and leaving the food to perish in the refrigerators. In fact, subjected to an exceptional demand for air conditioning, urban electricity distribution networks go haywire. As well as the budgets of users in the face of rising bills. Not only families, even small and medium-sized companies struggle to pay them or go into arrears. It is the latest pitfall both for the jobs that have so far escaped the recession accentuated by the two-year pandemic, and for those recovered from the action of the Peronist government in 2021. For intermediate development countries such as Argentina and much of Latin America it is a Sisyphean effort.
The sky full of dark clouds is also the inevitable metaphor of the again alarming economic situation in Argentina. Absorbed the first COVID-shock, the recovery achieved results that were not at all obvious: exports + 9% in 2020 and slightly lower in the forecast accounting for the year just ended, balance of payments in surplus, increase in tax collection and GDP (also for 2022: +2.2 according to the forecast of CEPAL). The robust subsidies decided in support of domestic tourism for the current season have revived consumption: especially transport, hotel industry and various businesses. Although partly calculated in the government's economic strategy, however, the unstoppable inflation (which adds up to 50 percent in the last 12 months) snatches away much of what it distributes with the other. It is the dog that bites its own tail.
Original sin has a complex historical dynamic. It arises from the insufficient capitalization of the country-system with respect to its economic needs (a problem that in Italy can be better understood than elsewhere …). So by development policies mainly based on external credit, accentuated in the last 50 years by the growing openings dictated by the planetary advance of privatization and globalization. Cyclical periods that many Argentines contain in the illusion-disenchantment formula and from which most governments have emerged far from unscathed. Almost all of them deeply infiltrated or at least lapped by inefficiencies and corruption, which have left free rein to tax evasion and capital flight (the estimate that equates the country's overall debt to the sum of assets owned abroad by a few hundred is commonly accepted of thousands of Argentines: 350/400 thousand million dollars).
In the immediate future, the iceberg that President Alberto Fernandez and Deputy Cristina Kirchner Fernandez are desperately trying to avoid (but not at any price) is the default of the priceless debt inherited from Mauricio Macri's previous government. It would be the second bankruptcy after the devastating one in 2001 and could deprive the great South American country (43/44 million inhabitants, fourth GDP of the entire continent) of every source of financing, to the point of determining its financial drift and pushing it in any case in a political-economic seism of unpredictable consequences. This is the 44 thousand million dollars granted in the second half of 2018 in the Stand-by formula by the IMF of Christine Lagarde, it is said under pressure from the then president of the United States Donald Trump, friend and former partner of the Macri family. The largest credit ever authorized by the Fund, which now acknowledges having made a serious mistake.
The EX POST Evaluation document of recent days reaffirms that the diagnosis of the Macri Ministry of Economy, on the basis of which the loan was decided, was wrong: it aggravated instead of alleviating the inflationary process (which "was not simply a monetary phenomenon, as caused by market and redistributive imbalances (..). A policy of coordination of prices and wages would have favored their containment, but was judged inadequate by President Macri "). “It was the biggest failure of the IMF”, they comment in Washington. Economics is not an exact science, it is to be added to recall the power and responsibility of politics. More specifically, the economist Mariana Mazzucato observes that until 1970 “finance was included in the GDP calculations only as an intermediate input, that is, a service that contributed to the functioning of other industries; those are, true creators of value ".
"Debts are not paid, they are administered", the now unanimously regretted President Raul Alfonsin repeated, to play down the heavy debt situation accumulated towards the end of his mandate in 1988. There was no lack of reasons, always and when that administration appears timely. He, despite the great flair of a liberal-socialist caudillo and the mirrored honesty, did not succeed completely. He had to pay for some nasty turbulence. And the current government, which despite just being installed at the Casa Rosada has cleverly renegotiated almost 70 million debts with public and private international banking, leaving the number one creditor, the IMF, for last, it is not certain that it has calculated its perfectly times. The negotiations of the Minister of Economy Martin Guzman, favorite pupil of the Nobel Prize winner Joseph Stiglitz, now appear in trouble.
The atmosphere has changed. The re-emergence of inflation across the West is pushing discount rates higher. Biden has lost his edge. After Lagarde's successor, Kristalina Georgieva appeared particularly helpful, so much so that she favored negotiations with the other creditors (Paris Club and private individuals), telling everyone that Argentina was not in a position to pay. Now, however, it is under attack within the Fund itself by the Trumpist lobby. At the Western Department (the office in charge of Latin America, an ancient fiefdom of the Italians from Vito Tanzi to Teresa Terminassian), there is a convinced neo-liberalist, Ilan Goldfajn, formerly in charge of the Brazilian central bank. At the Fund, too, the battle has resumed between supporters of growth, in favor of the flexibility of credit expansion, and the rigors of budgetary stability. But in this world economy of debt (whose absolute leader is the United States), from Latin America to Asia and Africa there are three dozen countries on the edge of the abyss.
If it yields to the myopia of an accounting and immediatist view of the situation, the Fund could trigger a new global crisis. Nobody says it openly, but added to the admissions of co-responsibility of the IMF and this is the "hidden card" of the Argentines in the negotiations that are proceeding at a fast pace. With a deadline of next March, when payments for millions of dollars are due that are not in cash… Not only in Washington, also in Buenos Aires, within the government, anxiety is growing. To President Alberto who asks for room for maneuver for his economy minister, vice-president Cristina replies by raising her voice once again to remind us that "the Macri debt pandemic costs the injured country more than that of the coronavirus, concretely: in 2021 paid installments of 5 thousand 160 million dollars to the Fund; compared to the 4 thousand spent to contain the consequences of COVID19 ". At stake is the electoral base of the Peronist government and the institutional stability of the country. Since the balanced budget demanded by the IMF means the cut in social spending and the consequent risk of ungovernability.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/mondo/argentina-inflazione-default/ on Fri, 21 Jan 2022 07:41:34 +0000.