This week’s New Yorker uses the Buenos Aires small change shortage to illustrate the key role confidence plays in any economy: Argentines are hoarding monedas in anticipation of never being able to gather enough coins for the bus, while US financial institutions are withholding credit in anticipation of defaults – which leads to an even greater scarcity of coins/credit. The BA coin crisis is something we reported on back in October 2007 with this video on Current TV, and later on Argentina Reporter with this post in April 2008.
Argentines, mistrustful of their government and fearful of what a global slowdown could mean for the local economy, are back to hoarding dollars, according to the New York Times:
Argentines are pulling money out of the country’s banking system at a pace that has alarmed some economists, stoking potentially self-fulfilling fears of another crippling default on international debt that could bring Argentina’s seven-year economic expansion to a screeching halt.
The Grey Lady’s report didn’ t go unnoticed in Argentina, where La Nacion, the national paper that’s highly critical of President Cristina Kirchner, noted the Times’ sharp criticism of her government, which it said compared poorly to that of Chile’s Bachelet and Brazil’s Da Silva, both of whom took better advantage of the commodoties boom to put away savings for the hard times that are now upon us.
President Cristina Kirchner was quick to congratulate president-elect Barack Obama on Wednesday, sending a letter that read “many will congratulate you for having been able to interpret the hopes and dreams of the American people. I join them in these more than deserved demonstrations of admiration. Nonetheless, this new epoch that begins today in your country is, more than anything, a great moment in epic struggle against discrimination…”
The letter, which was extremely warm, betrays CFK’s hopes that the tide of history is turning her way: neo-liberal capitalism is falling and an ex-activist – a black one, at that – has made it to the White House. After taking office in 2003, her husband Nestor Kirchner began by stablising the turbulent Argentine economy – which was growing rapidly due to the high prices the country’s agricultural products were fetching in a food-hungry market – then started taking up the leftist rhetoric of some of his neighbours and allies.
Cristina casts herself as a modern-day Evita – ex-student activist, defender of the poor and anti-US imperialist (and although experts say poverty has increased under the Kirchners the government manipulates official statistics to match its narrative). The Kirchners have taken up the cause of those who wish to see the crimes of the Dirty War punished, and courts are convicting and jailing ex-military repressors on a regular basis.
Her letter likens the struggle of her generation’s activists against the country’s military dictators – and the high price it paid (around 30,000 Argentines were killed during the 70s and 80s) – to the civil rights movement in the US.
This communion of sacrifice and rebellion, of solidarity and respect for justice, is what you will find in my government and and its people in our decision to advance, without rest, towards a more free and just world.
The Kirchners are from the Peronist party, whose traditions are populist and authoritarian but which delivered hard-fought rights to Argentina’s workers and usually counts on the country’s unions and urban masses for support. The Kirchners have abused the IMF for its role in imposing neo-liberal policies in exchange for loans, which most Argentines and many economists agree helped aggravate the country’s 2001 currency crisis. In a recent address to the UN general assembly, CFK defended the role of the state in the wake of the US financial crisis, and her latest move in that direction is a controversial plan to nationalise the country’s private retirement funds.
Each day we must confront many great challenges. At the moment, the world economic crisis that is unfolding with the destructive speed of an epidemic demands audacious and innovative solutions, but also, collective action.
In this way, just as those who confronted a world war understood the importance of multilateralism, so must we, with the same nobleness and intelligence, make urgent and necessary changes to create a multilateralism that might respond to the complexities of our distinct realities.
We have a great opportunity to eradicate poverty, discrimination and inequality in our societies. As you said in your campaign, to achieve this we need better education, health and opportunities. And, without doubt, more dialogue between leaders and their people.
I know we can count on you, and I want you to know that you can count on my sincere friendship.
DR. CRISTINA FERNANDEZ
President of Argentina
Fernandez de Kirchner will soon head to Washington to the G-20 meeting Bush has convened to discuss the world economic crisis. It remains to be seen whether she and Obama see quite so eye-to-eye as she seems to imagine.
Argentina’s wacky economic policies are making the news again, with the president succumbing to the nationalisation fever currently sweeping the capitalist world, saying she plans to have the government take over Argentina’s private pension funds.
President Cristina Fernández de Kirchner made the surprise announcement on Tuesday, in an appearance on state TV. She said that the government would nationalise all of ten Administradoras de Fondos de Jubiliación y Pensión (Administrators of Retirement and Pension Funds, or AFJP for short) that hold some $30 billion worth of investments, mostly Argentine government bonds and the and shares that represent the retirement savings of millions of Argentines.
The Economist sums up the situation nicely, echoing the lack of confidence most Argentines place in their government. What many here and abroad are asking is whether the proposed nationalisation is really a move to protect Argentines’ retirement from the vagaries of the stock market in uncertain times, or is it just a craven attempt to fill treasury’s coffers so the government can fund its election campaign in 2009?
Commentators and opposition politicians here in Argentina are extremely dubious. One opposition leader, Buenos AIres-based Elisa Carrió, said the move was an attempt to “plunder pensioners’ funds” and use the cash “to pay off debts or to amass a war chest for elections,” which will see a new Congress sworn in next year. Mauricio Macri, mayor of Buenos Aires and political foe of the Kirchners, who detect presidential ambitions in the millionaire ex-manager of the Boca Juniors football club, says the move would be a “criminal mistake” and has urged all citizens and opposition leaders to pay close attention to what’s going on.
The government, which appears to prefer improvisation over careful planning, is in an increasingly dicey fiscal position, with revenues dropping dramatically following the fall in commodities prices over the last few months. Some estimates say the weakening demand for Argentina’s agricultural products could see the government short by as much as USD$6 billion next year.
Many say the plan to nationalise pensions is sure to result in a drawn-out conflict which will see the government rely on populist rhetoric to justify the state takeover while heaping abuse on the “selfish” urban upper- and middle-classes who resist any effort that would see their wealth distributed more evenly. This is pretty much the same song sheet Cristina’s used during the debate over her attempt to impose a hefty tax-hike on farmers that saw the country divided strongly along ideological lines, with farmers staging a 100-day export strike earlier in the year. The measure was ultimately defeated in Congress, where Kirchner’s own party members – and, dramatically, her vice president – voted the bill down. The new proposal to nationalise retirement funds is also likely to meet with strong opposition across all party lines in the Congress but whether it will again split Argentines along the traditional – but arguably irrelevant – ideological divide remains to be seen. The president has lost considerable political capital over the course of the year and accusations of corruption like those being aired in the Valijagate suitcase scandal point to an extreme lack of transparency in her government.
Even lefty columnists, like La Critica‘s Martín Caparros, find they can’t support the move. “I couldn’t be more in favour of the nationalisation of pension funds,” he wrote on Wednesday. “Argentina needs to recover the State that was destroyed by the Peronists of the 1990s, but for this to happen the State must be and appear to be unblemished, unpolluted, cleaner than a propaganda white-wash. We all know this is not the case, and this makes it so much harder to defend certain policies.”
The private pension funds were created by Carlos Menem’s neo-liberal (but Peronist in name) government in the ’90s after years of poor management of retirement funds by successive Argentine governments which left the savings exposed to economic turmoil like hyper-inflation as well as the risk that they’d be sacked by crooked or incompetent politicians. Around 85% of workers took up the offer from private funds, and though the funds’ performance has fallen far short of perfect it’s not clear that their investors will feel confident with the government taking over.
The news saw the local share market, the Merval, sink by 18 points on Wednesday, to its lowest level in 20 years. But the Argentine exchange wasn’t the only one affected by the announcement. Markets around Latin America plunged after the news, which also shook things up in the mother country, where Spain’s share market dropped by 8%, its second sharpest fall for the year. The Spanish national daily, El Pais, referred to the move as an “Argentine absurdity.” Several major Spanish corporations have significant investments in Argentina, and would be affected by the move. Relations between the Kirchners and their Spanish counterparts are already somewhat strained by the Kirchners’ determination to nationalise Aerolineas Argentinas, which is owned by Spanish businesses. Despite assurances that the deal will be done above-board, with a proper takeover of shareholdings, there is so much mistrust of the Kirchners – and their government does so much talking out of both sides of its mouth – that some fear the company will be not so much nationalised as expropriated.
As the world awaits news of whether the US government will step in to rescue the global financial system, South American nations – including Argentina – are already feeling the effects of the crisis.
President Cristina Kirchner initially ventured to assert that Argentina would remain largely untouched by the crisis. While claiming this economic sturdiness as some kind of achievement of hers, it’s really just due to the fact that credit plays such a small role in Argentina’s economy, where people buy houses in cash and relatively few have access to credit cards.
But the country is already learning that their president was quite mistaken. Soy – one of Argentina’s most important exports – has already fallen to US$384 per tonne, a drop of 35% over the last two months. Given the government’s high (and controversial) export duties on grains, including soy, which is taxed at 35% of export sales, this will have a serious impact on revenues next year – some say the government will gather up to 10 billion pesos less in 2009.
Meanwhile, inflation is still putting pressure on consumers – and despite the fact that official statistics downplay the inflation rate, it’s also making it hard for the government to rein in public spending. Already the government has had to cut energy subsidies and raise tariffs on services, but some say in the new year public infrastructure projects will also be affected.
Neighbouring economies will also affect Argentina’s economic health. There are fears that if Brazil’s growth slows, Argentina’s exports to its major trading partner will drop, while Argentine business is nervous about Brazilian imports flooding the local market.
And of course credit – hard enough to get in Argentina – will become even tighter, with mortgages only offering variable rates. Argentine consumers will, like others elsewhere, put major purchases on hold and cut overall spending while they wait and see what happens.
All of this throws in doubt the capacity of Argentina to make good on bold plans to pay its debt to the Paris Club and to strike a deal with those still holding Argentine bonds that were subject to the country’s 2002 default.
The Kirchners have benefited extraordinarily well from a rapidly growing Argentine economy, overhwlemingly driven by high commodity prices. With the US economy going into recession, the US will buy fewer products from China, slowing that country’s growth and causing a drop in demand for Argentina’s soy and other food products. The Kirchners have every reason to be nervous.
“They told us South Americans that the market would solve everything, that the State wasn’t necessary, that interventionism was mere nostalgia. Nonetheless, we’re now seeing the most formidable act of state intervention in living memory, in precisely the place where they’d been telling us that the State was unnecessary.”
Thus spoke Argentina’s president, Cristina Fernandez de Kirchner, in her address to the UN General Assembly today in New York. The remarks follow some serious crowing on her part last week.
“We are witnessing as the First World, which had been painted to us at some point as a Mecca we should strive to reach, is crumbling like a bubble,” Fernández de Kirchner told her fellow Argentines, mixing her metaphors something shocking. “We with our own model, based on building with our own means, are here weathering the storm, firmly, recovered, and ready to face the present and the future.” She neglected to mention that the near impossibility of getting credit in Argentina would tend to insulate it from a major credit crunch.
In an apparent effort to avoid misunderstanding, she told the UN today that the US’s woes “don’t make us happy or at all content.”
But she couldn’t resist further sarcasm. In what appeared an attempt at some sort of wit, she said that just as previous crises that rippled out from the emerging economies have been nick-named with labels like the “tequila effect” (referring to the 1994 Mexican peso crisis) , or the “caipirinha effect” (referring to Brazil’s 1999 financial woes), nor the “rice effect” (presumably a reference to the Asian financial crisis of 1997), this time we’ve got what might be called the “jazz effect,” produced at the centre of the world’s largest economy, and expanding throughout the world.
The US wasn’t the only country to receive a rhetorical boxing around the ears from Cristina K. Earlier in her address, she called on Iran to cooperate with Interpol in apprehending the suspects (of Iranian nationality) in the the terrorist attacks on the Israeli Embassy in Buenos Aires (bombed in 1992, 29 dead and over 200 injured) and the city’s Jewish community centre (attacked in 1994, 85 dead and hundreds injured). Argentina is home to Latin America’s largest Jewish population, with most of its 200,000 Jews living in the capital.
Fernandez de Kirchner finished her discourse by sticking the boot into the Brits, who still have control of the Falkland Islands (known in Argentina as the Malvinas). She said it was an embarrassment that colonial outposts like this still exist. Argentina’s claim over the Malvinas (which it invaded in 1982 in a failed effort to wrest control from the British) is not merely a question of national pride. The UK is seeking to expand its sovreignty over large areas of sea bed surrounding the Malvinas and other South Atlantic islands. With Brazil discovering major oil deposits off its Atlantic coast, it’s hoped there’s more to be had in the region.
Before the general assembly, Kirchner held up her own government as a model of economic wisdom, with the state playing a highly interventionist role that, in her view, has helped produce Argentina’s strong growth following its 2001 financial crisis, placing the country in a position to pay back its debts – perhaps in full.
Yesterday, Fernandez de Kirchner announced that thanks to an appealing offer from major banks, Argentina would pay back the debt on defaulted government bonds, a move she hopes will encourage foreign investment. The Buenos Aires stock exchange responded well to the announcement, gaining 1.67% for the day. With the announcement on September 2 that Argentina would pay off its 6.7-billion-dollar debt to the Paris Club of international creditors, the government hopes to open Argentina up to foreign credit. But many critics say it’s not enough, and that the government will have to stop fiddling with its inflation figures (which it places at around 9% for the year, with independent assessments saying it’s more like 25%) and put the brakes on public spending if they truly want to stabilise the economy.
Click here for the Economist’s assessment of the situation.
This week’s big news in Argentina was the government’s decision to pay back its debt to the Paris Club, whose 19 members include Japan, Germany, the Netherlands, Italy, Spain and the United States.
President Cristina Kirchner made the announcement on Tuesday, September 2, to much applause from loyal party members and Argentine empresarios. The debt amounts to $6,706 billion US dollars and will be paid ahead of deadlines in an effort to boost the country’s weakening credit rating and encourage much-needed foreign investment. Many rating agencies have lately sounded worried about Argentina’s ability to make its debt repayments next year, with government spending high.
The debt will be repaid out of central bank reserves, which drew criticism from some government opponents who say the reserves shouldn’t be touched. Others say the real reason the payment is being made is to avoid an IMF visit to Buenos Aires to evaluate the country’s finances – a precondition of any renegotiation of the Paris Club debt. There’s very little affection for the IMF in Argentina, with many people blaming it at least in part for Argentina’s 2001 economic crisis, so paying back this debt and denying the IMF its fact-finding mission plays well with Argentines whose pride is still wounded by the country’s dismal fall.
The unexpected move was largely welcomed as a positive first step towards normalising relations between Argentina and its lenders. But until Argentina pays back all those bold holders who lost out in the 2001 default, its access to international capital markets remains blocked, forcing it to rely on friends like Hugo Chavez, who recently bought expensive Argentine bonds at 15%.
Click here for the Wall St Journal’s story, along with one of those weird WSJ sketched portraits that look nothing like the actual person.