By Ronald J. Morgan
The second year of the Mauricio Macri Administration is beginning with what use to be called the Washington Consensus firmly in control. As is usually the case with such administrations the focus is on economic reforms that will lead to increased foreign investment.
In Argentina, it’s a summer with 8% unemployment, higher air conditioning bills and little money available to go to the beach. Many people have been fired in the last year: 70,00o in the public sector and 162,000 in the private sector, according to a report by the Instituto Para El Desarrollo Economico.1
In Macri’s first year much of the 12 years of Left nationalist and anti-neoliberal agenda was swept away. Macri is unabashedly pro-American and Anti-Chavez.
Macri’s cabinet is a total about face in terms of who is in command of economic policy. Shaping a conservative pro business agenda is a troika made up of Marcos Peña, cabinet chief and architect of the Macri election victory, Mario Quintana, co-coordinator of the cabinet and founder of the Farmacity drug store group and the Pegasus conglomerate made up of Freddo Ice Cream shops, a mall and other interests; and Gustavo Lopetequi cabinet economic coordinator and former CEO of LAN Airlines Argentina. Much of the underlying ideas come from a Macri-related think tank,”Fundación Pensar”.
This December and January, the troika has been accused of firing officials who they have had differences with them on economic policy. Finance Minister Alfonso Prat Gray was axed after differences over a tax reform. He was a long time executive at J.P. Morgan.
Macri, who has designated himself the top economic boss of the cabinet, decided to split the finance ministry in two. Luis Caputo was named Finance Minister and Nicolas Dujovne was named Treasury minister. Caputo was head of the Argentina office of Deutsche Bank and has headed up an investment fund. Dujovne has been chief economist at Banco Galicia and has held a number of government economic jobs since the Carlos Menem era.
In Jaunary, Macri further showed an urge to ax dissident advisers by firing the head of Banco La Nacion, Carlos Melconian. Melconian was replaced by Javier Gonzalez Fraga, a former Menem Central Bank president. La Nacion is a development bank which assists the government in its economic policies. Gonzalez is a member of the board of directors of Peugeot auto company. Gonzalez also ran for vice president under the Cambio Radical party under Ricardo Alfonsin in 2011.
Macri was elected in 2015, with a just under 3% margin of victory. Voters seemed most upset with annoying controls on dollars, various price controls and growing recession. A spate of unresolved crimes, the lack of believability of official statistics and perceived politicization of the justice system also lead to a narrow defeat for the most powerful political movement since Juan Peron.
Shortly after taking office in 2015, the Macri administration benefitted from a number of corruption revelations involving former President Cristina Fernandez de Kirchner (2007-2015) and members of her cabinet.
But the Cambiemos coalition made up of the PRO party, the Radical Civic Union Party, and the Coalicion Civica ARI party finished the year with low popularity. While Macri gave himself a grade of 8 out of 10 for the year, a recent public opinion poll had the public scoring him with a 4. 2
Macri was no doubt voted into office to fix economic and political problems that became evident after the 2011 Kirchner re-election. But Argentines have had to suffer through a neoliberal fix sponsored by a cabinet led by multinational corporation executives and business magnates. Whether their recipé will stand up to the accomplishments of the now criticized Kirchner era remain to be seen.
The government is seen as a friend of the farming, mining and financial sectors. But ordinary Argentines have had to put up with a reduction in their incomes.
In 2015, Macri moved quickly to end the peso exchange rate controls putting the peso on a free float and allowing free access to dollars. He also resolved the outstanding Buzzard Bond holdout controversy by settling the foreign debt dispute with a $9.3 billion payment. He also lowered taxes on farm exports and freed controls on imports. Foreign corporations were allowed to send their profits home. The government statistics office known as INDEC was relaunched.
Confirming that Argentines had parked billions outside the country a tax amnesty on repatriated funds has brought in nearly $100 billion in offshore dollars and help raise government reserves to $38.7 billion.
The country was and still is in a steep recession with strong inflation. Statistics show a devastating third quarter, 2016, with inflation at its highest in 25 years at 40% and GNP dropping 3.8%. Consumer spending was down 3.1%.
Poverty was pegged by the new INDEC at 32%. Young families are particularly falling on hard times. Some 47% of children are living in poverty.
The precarious situation required the neoliberal government to boost spending on poverty programs and old age pensions. In the first half of 2016 Marcri boosted some welfare programs by 20% and implemented a VAT rebate for the poor. But by the end of the year the rising inflation and massive firings were causing larger and larger protests. 3
Pope Francis, an Argentine, joined with poverty organizations such as Barrio de Pie and the CGT Labor Federation in backing a government agreement to provide emergency assistance under a declared Social Emergency which will last until December 2019. The law passed congress Dec. 7 and will increase social relief programs by $1.8 billion. In addition to the regular welfare increase, the law will boost unemployment insurance, and increase financing for soup kitchens. Informal workers will be allowed to a receive a compensation that boosts their income up to one minimum wage. Government cooperative jobs will be increased from 300,000 to 510,000. The plan also calls for a $125 dollar year end bonus for those on welfare.
Access to foreign borrowing has allowed the country to imagine restarting the economy. The Macri government after paying the Buzzard Bond foreign debt holdouts, were able to return to the international finance markets. They then borrowed $37.8 billion in new funds and they plan to borrow $13 billion more in 2017. This money along with economic reforms will restart the economy, reduce inflation and set the stage for 20 years of healthy economic growth the Macri financial gurus predict. 4
But the year has begun under a cloud of certainty. The government contends the economy has started to move ahead and that inflation is headed downward during the last months of 2016. The official prediction for 2017 is 3% GDP growth. The IMF, however, recently backed off a rosy November assessment predicting GDP growth of 2.7% in 2017 and now predicts a lower 2.2% growth.
The first year of Macri’s effort was lost to fighting inflation and reducing the budget deficit. The small political coalition enters the second year of its four-year term with October congressional elections threatening a sharp rebuke from the electorate.
Annoying Kirchner exchange controls have been replaced by annoying public price hikes and massive job firings that have cut Argentine spending power. The lower middle class has been hit hard in addition to the poor.
The Kirchner government has been criticized by the Macri team as relying too much on heavy government spending and consumer purchasing. From 2001 to 2014 government employment rose from 2.3 million to 3.9 million.
Macri plans to change the model toward investment growth. Early in 2016 he announced that the government had 1.5 million public jobs too many and began cutting.
The Macri government made its most dramatically austere move by deciding to end government subsidies of public utilities and other public services. The decision resulted in dramatic public sector price increase known as the Tarifazo. The Argentine think tank Ecolatina reported that government controlled prices increased 66% in the Buenos Aires capital area. This included 467% increase in electricity, a water increase of 300% and a gas hike of 254%. Public transportation jumped 70%. All this added 7% to the total inflation rate, Ecolatina reported. The peso devaluation and price increases pumped up Argentina’s inflation to 40% in 2016.
The increases, which are continuing this January, (30% more on electricity, a 8% hike in gasoline prices and a 130% increase in toll road fees) are supposed to show the international investment community that Argentina is putting its fiscal house in order and supposedly with such sound management international investment will come calling.
But with most Argentines facing an austere summer budget the financial gurus may have their priorities out of line with political reality. No doubt the Argentina that rejected neoliberalism and the George Bush ALCA trade agreement at the 2005 Summit of the Americas is not the boss this year.
In 2016, the once derided International Monetary Fund, was back showing strong allegiance to Macri’s neoliberal priorities. In a Nov. 9 economic performance review the IMF team called the Kirchner approach “An incoherent and disturbing economic model.” The Macri team on the other hand was carrying out “a well managed and necessary transition.” 4a
The IMF said the previous subsidy of government service prices should be counteracted by focused poverty relief programs. An idea that is under way but has worked better on paper than in reality in the past.
The economy will be relaunched by using the recently borrowed money to undertake infrastructure and new housing programs. A year end tax reform which passed after tense negotiations with Argentina’s major CGT labor federation, is also supposedly going to free money for consumer spending.
Macri also obtained some labor concessions aimed at speeding development of the new Vaca Muerta shale oil fields. But the move to force labor concessions is already galvanizing labor resolve not to be short changed in too many economic areas. The votes of labor are looming in the balance over the perception that Macri wants a cheaper labor environment. 5
The failure of the government to pass regulations governing the recently passed Economic Emergency Law programs, a failure to hold down further job firings until March as agreed with labor; and issuance of a law weakening on- the-job injury protections, angered the powerful CGT labor confederation at its annual summer barbecue this January.
Labor also found the announcement of a cut in long weekend holidays to be too much. The threat of a major labor protest now looms in the near future.
As the election approaches in October, Macri and his team of advisers are in need of evidence of a real economic turn around. So far, they only have a couple of monthly statistics indicating a downward trend in inflation and a slight up tick in some production numbers. The minor good news came in the final months of 2016. 6
The big question is whether former President Fernandez de Kirchner will decide to run for a congressional seat. But whether she runs or not, Kirchner forces are expected to be campaigning against an administration which has fired tens of thousands and raised prices on government services to the max. The opposition may be strengthened if voters believe that, once again, neoliberal economics is asking the public to pay for an improvement in the business environment.
The official Pro coalition campaign will likely have a strong ideological content focusing on alleged corruption and other wrong doing by the previous government.
But despite the charges of political wrong doing, the Kirchner economy from 2000 to 2011 remains hard to dismiss. This summing up on Argentina Wikipedia shows Cambiemos faces a significant challenge on the economic front:
“The economy nearly doubled from 2002 to 2011, growing an average of 7.1% annually and around 9% for five consecutive years between 2003 and 2007. Real wages rose by around 72% from their low point in 2003 to 2013. The global recession did affect the economy in 2009, with growth slowing to nearly zero; but high economic growth then resumed, and GDP expanded by around 9% in both 2010 and 2011 Foreign exchange controls, austerity measures, persistent inflation, and downturns in Brazil, Europe, and other important trade partners, contributed to slower growth beginning in 2012, however. Growth averaged just 1.3% from 2012 to 2014, and rose to 2.4% in 2015.”
1.DESPIDOS MASIVOS EN ARGENTINA:
CARACTERIZACIÓN DE LA SITUACION Y
ANÁLISIS DEL IMPACTO SOBRE LA…
Wo rking Paper · December 2016.http://www.iade.org.ar/system/files/despidos_masivos_en_argentina_-_caracterizacion_de_la_situacion_y_analisis_del_im
2. Un año de Macri: el 43% de la gente hace un balance negativo de la gestión y el 26% la ve bien3 de Dic. 2016 http://www.clarin.com/politica/macri-gente-balance-negativo-gestion_0_BkJnKngml.html.
2a. Polls Shows More Argentines Think Macri’s Government Is Worse Than CFK’s Year end Poll http://www.thebubble.com/polls-shows-more-argentines-think-macris-government-is-worse-than-cfks/.
2b. Desde la UCA estiman que aumentó la indigencia en el último trimestre de 2016 http://www.cronista.com/economiapolitica/Desde-la-UCA-estiman-que-aumento-la-indigencia-en-el-ultimo-trimestre-de-2016-20170107-0010.html
3. Argentine Government Caves: ‘Social Emergency’ Bill To Go To Congress http://www.thebubble.com/argentine-government-caves-social-emergency-bill-to-go-to-congress/
3a. Macri trumpets welfare benefits April 17, 2016 http://buenosairesherald.com/article/212736/macri-trumpets-welfare-benefits
3b. Qué es la Ley de Emergencia Social La CGT y organizaciones sociales se manifestaron hoy para reclamar su aprobación http://www.lanacion.com.ar/1957488-que-es-la-ley-de-emergencia-social
4. IMF Executive Board Concludes Article IV Consultation with Argentina On November 9, 2016, https://www.imf.org/en/News/Articles/2016/11/10/PR16500-IMF-Executive-Board-Concludes-Article-Consultation-with Argentina
4a. “Hay tres objetivos: bajar el déficit, subir el gasto de infraestructura y disminuir impuestos distorsivos”, dijo Dujovne http://www.lanacion.com.ar/1971676-conferencia-de-prensa-nicolas-dujovne-caputo-gobierno-economia
4b.. How Argentina Settled a Billion-Dollar Debt Dispute With Hedge Funds times.com/2016/04/25/business/dealbook/how-argentina-settled-a-billion-dollar-debt-dispute-with-hedge-funds.html?ref=oembed&_r=0
5. Vaca Muerta: Macri pidió que el acuerdo se extienda a todos los sectores http://www.ieco.clarin.com/politica/vaca-muerta-macri-pidio-acuerdo-extienda-sectores_0_SyzixW78e.html.
5a. Flexiblization,Macri, Clarín y el empresariado: plan de guerra contra la clase trabajadora http://www.laizquierdadiario.com/Macri-Clarin-y-el-empresariado-plan-de-guerra-contra-la-clase-trabajadora
6. La encuesta de la Provincia que pone en alerta a Mauricio Macri y María Eugenia Vidalhttp://www.clarin.com/politica/encuesta-provincia-pone-alerta-mauricio-macri-maria-eugenia-vidal_0_Bkkgl-r8e.html