AL THE PRESIDENTIAL palaces in Buenos Aires, political advisers are frank about their priorities. “We are putting meat on the grill for those who put us in power,” said one of them, referring to voters’ cheerful preparations for the midterm elections scheduled for October. “Debts can wait.
These debts include $ 45 billion due to the IMF, about $ 1,000 per Argentinian. The country can in no case face its repayments, as admitted on March 24 Cristina Fernández de Kirchner, vice-president and central figure of the stormy politics of the country. The government will need a new IMF to lend. But there is no rush to agree on one.
Since entering into a debt deal with its private bondholders in September, it has sought to reduce the budget deficit (which reached 8.5% of GDP last year) as the pandemic permits. Higher taxes on wealth and soy exports helped close its immediate budget deficit. And in an effort to curb inflation that exceeds 40%, he has pledged to print less money to fund his expenses. But it has also resorted to price caps and export bans, as well as abusive companies to keep goods artificially cheap. Ruinous subsidies on utilities, like electricity, remain. And he tightened capital controls to keep money from leaving Argentina, thus supporting the peso. Its official exchange rate against the dollar is 50% higher than the black market rate.
The government is counting on raw material exports to fill its crates after the harvest this month and next. Wheat prices are close to their highest level since 2014. He also expects a second windfall of more than $ 4 billion if the IMFS shareholders agree to new special drawing rights for its members, which allow countries to borrow reserves from each other. This influx of dollars should be enough to stabilize the peso and pay the IMF the money owed to him this year. After that, the debt processing cannot wait any longer. Argentina will either get a new loan or default on the previous one.
In the meantime, the government has nothing good to say about the current loan. Indeed, the anti-corruption office has lodged a complaint against the former president, Mauricio Macri, and four of his advisers, who negotiated a IMF bailout in 2018. They are “authors and participants in … the worst embezzlement of memory,” says current president Alberto Fernández. They furiously dispute this.
Senators from the ruling Peronist party demanded an apology from the fund. Ms Fernández, who in recent months has consolidated her power, estimates that the repayment should be spread over 20 years. The fund can offer a loan for only half of this term. And he will first have to see an economic plan that he can approve without batting an eyelid.
Ideally, such a plan would aim for both stability and growth. The two are closely related. Growth would make it easier to control the budget deficit without the painful social sacrifices that tend to erode support for the government. A narrower budget deficit would help control inflation, which would improve Argentina’s competitiveness and boost exports. Stability is necessary for growth to take off. And growth is necessary for stability to last.
A well-designed plan would broaden Argentina’s tax base, in order to generate more income without the high rates that push so many businesses into the informal economy. It could also index public spending, including spending on pensions, to the inflation target the government is aiming to achieve, rather than inflation that has already occurred. This would help suppress inflation rather than anchor it. The price of public services must be brought closer to their cost and their regulation must be removed from politics.
Such reforms would help Argentina. But some would likely cost the government votes. It is not a risk that he is prepared to take. Its approval rates have fallen from 84% to 38% since the start of the pandemic, thanks to a string of vaccination scandals.
Indeed, in addition to the natural desire for power of any government, Argentina’s leaders have an additional motive for wanting to be re-elected. The victory would allow them to pass new laws governing the appointment of judges, potentially blocking the prosecution of Ms Fernández for any past corruption (she denies all charges). “It’s the politics of procrastination,” says Sergio Berensztein, a political analyst. “But the goal is serious. To keep her in power at all costs, with immunity.■
This article appeared in the Americas section of the print edition under the title “It takes two to disentangle”