Argentina: Excessive Optimism?

By Nicolás Comini*

Man delivers a speech on an airfield.

Argentine President Mauricio Macri. / Cancillería del Ecuador / Flickr / Creative Commons

Argentine President Macri’s Cambiemos coalition won an overwhelming victory in last month’s legislative elections – a step toward fulfilling his 2015 promise of a “revolution of joy” – but it’s not clear yet whether the administration’s optimism translates into national hope.  The coalition won in 15 of the 24 provinces of the country, including the five largest jurisdictions – the City of Buenos Aires, Buenos Aires, Córdoba, Mendoza, and Santa Fe.  Government officials and Macri’s supporters have expressed optimism that the economy will turn around and political confrontation will be overcome.  Macri won the presidency in 2015 with an alliance that made optimism – and the appearance of optimism – a central theme for overcoming what he called the polarization generated by his predecessor, former President Cristina Fernández.  His discourse was rooted in the ideas of change, happiness, efficiency, and meritocracy.

  • Even critics acknowledge that the government has generated innovation in terms of political discourse and representation, rooted in a greater horizontality of leadership and greater citizen access to public officials. News of some officials’ questionable business practices as revealed in the “Panama Papers” and “Paradise Papers” has caused little or no backlash.  Second, the idea of “normalization” of the country, supported by the media, has had a positive impact on part of society.  GDP growth at almost 3 percent this year and the lifting of exchange controls and imports have also buttressed this theme.  The unfavorable trade balance, with a deficit of US$765 million in 2017, has not been a factor.  Third, the government is still able to blame the country’s problems – including high levels of inflation and indebtedness – on the “received inheritance” from his predecessors, whose rule implied corruption, social polarization, and isolation from the world.
  • Rejection of the legacy of Cristina Fernández and her husband/predecessor, Néstor Kirchner, also seems to be one of the Macri government’s greatest assets. Even though Cristina is the most popular candidate in the opposition, her rejection among the broader population is greater; many of the votes that the government’s allies garnered were “anti-Kirchner” votes.  Cristina won a seat in the Senate, but in national politics, there’s a growing sentiment of “anyone but Cristina,” while a civil war simmers within the ranks of her Peronista base.  The political rise of Macri ally María Eugenia Vidal as governor of the Province of Buenos Aires – historic bastion of Peronismo and the country’s main electoral district – attests to these troubles.

Macri’s gains indicate a significant strengthening of the government, which is key to the reform package that the administration launched almost immediately after the election.  Proposals include aggressive changes in tax and labor matters.  While the tax reform has triggered battles with some large corporations, such as Coca-Cola, that will pay higher taxes, the labor reform has broad support from employers.  The latter faces strong resistance from a large part of society and, above all, of the union and opposition sectors, who fear that it, similar to one already carried out in Brazil, will contribute to job insecurity.  Macri’s increasingly forceful discourse on reducing public employment has also raised concerns despite his assurances that reducing state structures will help create private-sector jobs.

British theorist Terry Eagleton has said that an optimist is someone who thinks that things will improve even if there are no reasons for it.  The optimism of the government and its supporters is as easy to understand – there are some clear reasons for it – as it is palpable.  Macri has a strong government in a Latin America plagued by weak governments.  He not only has power in parliament; the country’s large corporations, mass media, security forces and, of course, an important part of the people are also behind him.  But Argentina is accustomed to living in cycles.  Expecting that in Argentina one or two or even three electoral victories will produce a durable revolution and fundamentally change those cycles, as the current government’s rhetoric suggests, may not be warranted by the facts.  Each administration usually assumes that the previous one did things absolutely wrong, and they will do better this time.  But this kind of impulse has an expiration date.  Joy and good vibes can have a positive impact on a society’s feelings about itself, but a real lasting solution will require addressing the underlying causes of the country’s polarization, poverty, and exclusion.  This implies, above all, state policies and continuity through different administrations.

November 15, 2017

* Nicolás Comini is Director of the Bachelor and Master Programs in International Relations at the Universidad del Salvador (Buenos Aires) and Professor at the New York University-Buenos Aires. He was Research Fellow at CLALS.

Behind Argentina’s Making up with its Creditors

By Arturo C. Porzecanski*

Pensive Macri

Photo Credit: Mauricio Macri / Flickr / Creative Commons

A recently concluded agreement in principle between Argentina and most of its holdout creditors is part of a 180-degree turn in economic policy that the new administration of Mauricio Macri is attempting to make in order to end five years of economic stagnation, 10 years of double-digit inflation, and 15 years of isolation from the international capital markets.  President Macri has to navigate very carefully, however.  First, he does not have a majority in either congressional chamber, so he has to work hard to persuade legislators to support his policy initiatives.  Second, the judiciary and the Executive branch are packed with political appointees from the Néstor and Cristina Kirchner administrations, and while some of them have been fired, Macri and his economic team must still tread cautiously.  Third, all the key economic institutions, such as the government’s commercial and development bank (BNA), the central bank (BCRA), and the social security administration (ANSES) have been stuffed to the gills with either risky or unprofitable assets (from bad loans to government IOUs), thereby compromising their effectiveness.  Last but not least, Macri must be mindful of his very fickle electorate: over the past seven decades, Argentines have periodically voted non-Peronists into office to clean up the mess left behind by the Peronists, but then they have soured and yanked their support.  It is a sobering fact that not a single non-Peronist government has ever made it to the end of its constitutional term in office.

This is why the Macri administration is going for some “quick wins” rather than for major structural reforms or the necessary dose of fiscal austerity and monetary restraint.  And this is the context within which his willingness to “bury the hatchet” with private and official creditors must be understood.  As a former businessman, Macri realizes that if one takes over a money-losing enterprise – in this case the public sector, which is running a deficit equivalent to more than five percent of GDP – one needs to cultivate sources of interim financing until the enterprise can be turned around.  After all, the prior government had been living hand-to-mouth on loans from the BNA, the BCRA, and ANSES, with increasingly inflationary consequences.  Having lost official international reserves and seen the currency depreciate rapidly after abolishing capital controls, the authorities are now under great pressure to obtain interim financing from abroad to help stabilize international reserves and support the weak currency.

President Macri faces a very difficult governance challenge in the months and years ahead.  His ability to mend fences with private creditors – Argentina has been in arrears to all its bondholders since mid-2014 – as well as with the IMF, multilateral development banks, and official creditors such as the Ex-Im banks – is crucial to the restoration of financing to the private and public sectors and the fostering of an investment-friendly climate.  Macri’s agreement in principle with most holdout creditors is a big step in the right direction, but he must now secure the requisite congressional approvals to dismantle Kirchner-era legislation inimical to a settlement and obtain interim financing at reasonable interest rates to clear all overdue debts.  These are early and relatively easy tests for a government that is yet to adopt most of the divisive and unpopular austerity measures that circumstances warrant.

March 10, 2016

*Dr. Porzecanski is Distinguished Economist in Residence at American University and Director of the International Economic Relations Program at the School of International Service.

What Does Macri’s Victory Mean for Latin America’s Left Turns?

By Eric Hershberg and Fulton Armstrong

South America right

Photo Credits: Douglas Fernandes and _Butte_ / Flickr / Creative Commons

Argentine President-elect Mauricio Macri’s actions since his historic victory last week indicate a rightward shift in domestic and foreign policy that some observers are tempted to proclaim as part of a broader Latin American trend.  He has reiterated promises of broad economic reforms and appointed a cabinet – including former JP Morgan executive and ex-Central Bank chief Alfonso Prat-Gay as his finance minister – to implement them.  He has further pledged to reverse outgoing President Fernández de Kirchner’s protectionist trade policies.  (During the campaign, advocates of unbound capitalism cheered when he named Ayn Rand’s “The Fountainhead” as one of his favorite books.)  Macri has named Susana Malcorra, a senior aide to UN Secretary General Ban Ki-moon with strong diplomatic credentials, to be his foreign minister and, for starters, directed her to reverse policies he judged to coddle Venezuela. The President-elect, who takes office on December 10, is speaking with the confidence of a President elected with more than a 3-point margin over Kirchnerista candidate Daniel Scioli and with control over more than the 91 seats (one third of the total 257 seats) that his Cambiemos coalition won in the lower house of Congress.  (His party is the first, however, to control simultaneously the Province of Buenos Aires, the City of Buenos Aires, and presidency.)

The temptation in some quarters to declare Macri’s victory as the beginning of the end for Latin America’s “Left Turns” is understandable but nonetheless premature.  To be sure, the Argentine electoral results coincide with other major setbacks for various currents of the Latin American left:  The Chavista project in Venezuela is crashing; Brazilian President Rousseff and her party are mired in a corruption morass and economic crisis whose combined effects may cut short her time in office; President Correa, facing a dire economic situation in Ecuador, is increasingly talking about abandoning efforts to run yet again in 2017.  Chilean President Bachelet’s low popularity and declining public support for the Vázquez government in Uruguay may be additional signs that the prospects for the “pink tide” are very much in doubt.

But in Argentina and beyond, the jury is still out.  Through no action of its own, the South American left enjoyed the multiple benefits of the decade-long commodity boom that began in 2003.  Just as its electoral successes did not indicate wholesale shifts to the left in the region – indeed political scientists have long questioned whether the evidence supports claims of a leftward shift in popular preferences – today’s parallel crises may reflect the end of of the boom rather than a rejection of left-leaning governments.  Many of the policies advanced by various currents of the “pink tide” may remain highly popular, even while they are no longer affordable.  Another tempting explanation is that Latin Americans are rejecting leaders who they perceive as corrupt, irrespective of their placement on the left-right spectrum.  In Argentina, notably, Macri hasn’t rejected the Kirchneristas’ redistributive agenda but has instead emphasized the confusing, corrupt way it has been pursued for the past 12 years.  (Never before has an Argentine rightist portrayed eliminating poverty as a core priority.)  It may well be that voters understand economic slowdowns and dysfunction as a product of corruption rather than the fallout from declines in historically high commodity prices.

Regardless of the underlying drivers of electoral change and public disillusion with incumbents, it’s fair to ask if the left’s current travails and the right’s resurgence will open the way toward more accountable political leadership, whatever its ideological proclivities, or just signal an alternation of power.  Like Macri in Argentina, a new cohort of Latin American leaders will have to prove that they are more than outsiders drawing on sentiment to throw out the incumbent rascals.  The question is whether they pursue policies that make democracy more transparent, expand meaningful political participation, and sustain the social gains that have been achieved by the pink tide governments that now appear to be on the ropes.

December 2, 2015

Argentina: Burying the hatchet?

By Arturo C. Porzecanski*

Photo credits: Finizio and Global Panorama / Foter / Creative Commons Attribution-NonCommercial-NoDerivs 2.0 Generic (CC BY-NC-ND 2.0)

Photo credits: Finizio and Global Panorama / Foter / Creative Commons Attribution-NonCommercial-NoDerivs 2.0 Generic (CC BY-NC-ND 2.0)

The administration of Cristina Fernández de Kirchner has shown a willingness to bury the proverbial hatchet and bring to a definitive end what was once the largest sovereign default in recorded history – nearly $100 billion in obligations to domestic and foreign bondholders and official foreign-aid and export-credit agencies, including the United States Export-Import Bank.  In late May, Argentina reached an agreement with its official creditors (gathered as the so-called Paris Club), committing to repay everything that had come due in full and in cash – nearly $10 billion in principal, past-due interest, and interest-on-interest – over the next five years, starting with a down-payment in July.  In recent days, President Kirchner has also signaled that she is ready to negotiate a payment plan with bondholders who are potentially owed even more than the Paris Club creditors.  The trigger for this conciliatory attitude is two U.S. Supreme Court decisions announced on June 16 which granted jilted creditors wide latitude in seeking redress from Argentina.  The first ordered the government in Buenos Aires to stop discriminating among its bondholders by paying most but not all of them; and the second mandated banks operating in the United States to disclose any and all assets owned by Argentina anywhere in the world, facilitating efforts to seize them by unpaid creditors.

Argentine governments since the closing and troubled days of 2001 have taken a notoriously hard line toward creditors ever since Acting President Adolfo Rodríguez Saá announced that he would be suspending payments on the public debt and dedicating all sums budgeted for that purpose to fund an emergency jobs program and increased social spending.  Cristina and her predecessor (and late husband), Néstor Kirchner, embraced a populist-cum-nationalist view of the world according to which the state must favor the interests of the majority of its population, particularly in terms of redistributing income from the “haves” to the “have nots.”  Pervasive state interventionism, confiscatory taxation, disrespect for private property rights, widespread controls (on prices, interest rates, foreign trade, and capital flows), and confrontational attitudes toward investors became the hallmark of economic policy in Argentina.  Despite a vigorous economic recovery starting in mid-2002, creditors never got a single payment from Argentina – and the government made only an arrogant take-it-or-leave-it proposition to private creditors by which they would turn in their bonds and receive new ones worth one third as much.  By late 2010, over 92 percent of the private creditors capitulated and went into the debt exchange.  According to a reputable comparative study of sovereign defaults in the Journal of International Money and Finance published in 2012, Argentina’s behavior towards its creditors displayed an exceptional degree of coerciveness.  While Argentine and European creditors had no luck pursuing their claims in their respective courts, most bondholders who had legal rights under New York State law succeeded in obtaining favorable judgments – and lately, in gaining enforcement rights as well.

Argentina has set such a bad example in terms of how to restructure the public debt that no other nation has dared to follow it since.  Given the recent advance in creditor rights courtesy of the U.S. Supreme Court, chances are that no other government will ever be motivated to copy Argentina’s rogue-debtor behavior – a very good outcome for the world at large.  Concerns that the decade-long judicial fight in the United States will slow down or impede future sovereign debt restructurings are greatly exaggerated.  Before reaching their decisions, the U.S. courts heard from many academic and non-academic experts, and from several governments (Brazil, France, Mexico and the United States), and the New York District Court of Appeals dismissed warnings of impending doom as “speculative, hyperbolic, and almost entirely of [Argentina’s] own making.”  Argentina engaged in uniquely egregious misconduct, violating the well-established norms of sovereign debt restructuring, refusing to negotiate with its creditors, ignoring court orders, and failing to honor its obligations subject to U.S. law despite the country’s unquestioned ability to pay.  The legal rights conferred to minority bondholders in the 1990s, which were actionable in this instance, have been superseded during the 2000s by the widespread inclusion of new “collective action” clauses, inspired by English law, preventing a small minority from blocking a debt restructuring supported by a large majority (at least 75 percent) of creditors.  These clauses have worked very well in recent years, including in the cases of Greece and Belize in 2012 and 2013, respectively.  Therefore, while the advancement of creditor rights brought about by the Argentina litigation will encourage governments to be more conciliatory towards their creditors, the evolution of market practices means that fewer than 8 percent of total creditors will never again be able to demand payment in full the next time that a government obtains the consent of everyone else.

*Dr. Porzecanski is Distinguished Economist in Residence at American University.

Performing the Pope

By Brenda Werth

Photo credit: presidencia.gov.ar | Creative Commons

Photo credit: presidencia.gov.ar | Creative Commons

The pope is a populist par excellence – Pope Francis has proven to be no exception – and Argentine President Cristina Fernández de Kirchner (CFK) is trying to harness some of his unprecedented approval for her own ends.  Since his election in March 2013, supporters of Pope Francis have credited him with changing the tone of the Catholic Church, renewing its relevance, detracting attention away from intractable issues (abortion, gay marriage), decrying capitalism and refocusing efforts on fighting inequality and poverty.  “Who am I to judge?” he famously responded when asked to comment on gay priests.  And yet, in his previous life as Archbishop Jorge Bergoglio of Buenos Aires, his judgments with regard to gay rights, specifically his strong condemnation of gay marriage, are what then caused the substantial rift between him and CFK’s government.  The Argentine government has passed some of the most progressive gay rights legislation in the world, making same-sex marriage legal and awarding full adoption rights to same-sex couples in July 2010.  CFK called Bergoglio’s stark opposition medieval.  What is surprising, then, is the conciliation that has taken place between the President and Bergoglio as pope.  It has taken place over the last year in the form of public rituals and urban iconography, bringing the Pope and CFK together in a symbiotic performance of national identity and Peronist imagery.

Given their past differences, their newly fashioned bond conjures a kinship not based solely on shared political views.  CFK has drawn public attention to certain rituals and events that link the two through the construction of familial intimacy.  Perhaps the most stunning example of her attempts to incorporate the Pope into the big happy Kirchner family is in her party’s use of a photographic collage juxtaposing Juan Perón, Néstor Kirchner, CFK, and Pope with the caption, “Mirá pibe a dónde llegamos” (Look, kid, how far we’ve come).  In May 2013 the collage appeared on a gigantic banner covering the façade of the Central Market in plain view of motorists on the heavily transited Riccheri highway.  In June, she broke protocol when she discarded the recommended template and wrote an informal letter to the Pope in honor of the Day of the Pontiff.  Discussed at length in the press, the missive was personal and colloquial in tone and closed mysteriously with Fernández urging the Pope to “take care” and “drink mate.”  When the President’s first grandchild was born a month later, images of the President accepting the Pope’s gift of baby shoes circulated widely in the press, together with her exclamations of “Look what the Pope got me for Néstor Iván.”  And in August, the Perón-Kirchner-Pope collage appeared blazoned on the side of a van deemed the Argentine version of the “Pope mobile,” unveiled by the Kirchner party in support of Frente por la Victoria candidates.

The collage captures perfectly CFK’s campaign to include the Pope in the big happy Kirchner family, but more importantly, it positions CFK herself as a key member of this influential family as she seeks to consolidate not only her own legacy, but also her political future.  With Juan Perón positioned top left and Néstor Kirchner top right, the collage resembles a family tree, in which CFK and the Pope are both direct descendents of a conflated Peronist/Kirchner genealogy.  Recast as founding fathers in this familial image, Juan Perón and Néstor Kirchner look down at CFK and the Pope from an atemporal, mythological realm, their solemn gaze directed at the newfound alliance between CFK and the Pope, solidified through the handshake between two of the world’s savviest of populists.  Dictatorial and democratic regimes alike have manipulated family discourse in Argentina to achieve political means.  The almost imperceptible image of the National Congress Building that constitutes the background of this collage is a reminder of what this performative family portrait ultimately seeks to achieve.  The Pope’s enthusiasm to play the familial role is unclear; a sign of wariness might be detected in his decision to postpone his first official trip to Argentina until 2016.  This date, ostensibly chosen in order for the Pope to participate in the bicentennial of the Declaration of Independence, perhaps more conveniently allows him to avoid the intense campaign period preceding general elections in 2015. 

Argentina: Yet another political cycle ends in crisis?

By Inés M. Pousadela

President Cristina Fernández de Kirchner / Photo credit: Expectativa Online / Foter / CC BY

President Cristina Fernández de Kirchner / Photo credit: Expectativa Online / Foter / CC BY

Another ismo born of peronismokirchnerismo, more recently reshaped as cristinismo – is coming to an end in Argentina.  President Cristina Kirchner and her government – reelected in 2011 with 54 percent of the vote – have lost support and burned political capital at an alarming pace. For most of the decade that she and her predecessor and late husband, Néstor Kirchner, have occupied the Casa Rosada, economic growth and favorable external conditions fueled both public expenditures and private consumption. The Kirchners’ administrations (Nestor’s in 2003-2007 and Cristina’s since 2007) renewed state intervention in the economy after the failure of the “neoliberal” experiment led by Carlos Menem (menemismo, another variant of peronismo), and implemented social policies that elicited widespread support from a population that was sympathetic to redistributive initiatives after the economic crisis in the early 2000s. Yet little progress was made in reducing inequality or increasing social cohesion, as was evident when inhabitants of poor suburban areas looted their own neighbors’ small businesses last Christmas. As the economy has weakened, corruption and the absence of efficient and transparent institutions have once again riled the middle class, as shown by both opinion polls and street protests.

The quick social fixes and improvised economics that have long characterized Argentine politics invariably have an expiration date – which in this case seems to be arriving soon.  High inflation – 5 percent in January alone despite repeated attempts at price controls – is eroding wages as the government keeps trying to fund expenditures by printing currency. Amidst inadequate investment and widespread corruption, commuter train crashes have killed dozens of people; massive electricity cuts have taken place over the summer, and gas supplies are expected to fall short as soon as the weather chills. Government denials of any intention to devalue the currency rang increasingly hollow as the official value of the peso dropped 19 percent in January – the biggest devaluation in 12 years. Leaders’ portrayal of the tendency of the population to hoard dollars as an ideological deviation, rather than a rational economic decision, rankled.

As the quality of life of Argentines declines, popular discontent mounts. The prevailing sentiment is one of uncertainty not just about the value of the currency, or even about the durability of policies that are typically announced one day and contradicted, modified or ignored the next. The deeper trepidation in popular feeling is that the future itself has yet again become uncertain.  No one doubts that a cycle is ending; the question – candidly posed even by some of the government’s allies – is how this will all end.  Will conditions become as bad as those that cut short the governments of Raúl Alfonsín in 1989 and Fernando De la Rúa in 2001?  And what comes next?  Unlike those two relatively recent debacles, this time it is the Peronistas who risk association with economic collapse.  With the president increasingly relying on her loyal inner circle, anxious peronista governors, mayors and labor leaders are trying to distance themselves from the Kirchnerista experiment.  Peronista candidates jockeying for position in the 2015 presidential race are as apprehensive as the broader population, while opposition forces lack incentives to cooperate towards developing a credible alternative. Across the spectrum, political leaders appear as clueless as the government regarding how to get out of this most recent mess. Judging from Argentina’s experience, mounting popular frustration is likely to find some expression in the streets as well as at the polls. It is still to be seen which combination of electoral politics and street protest eventually prevails.

Finding New Approaches to Media-Government Tensions in Latin America

By John Dinges

Press Conference in Lima, Peru Photo credit: World Economic Forum / Foter.com / CC BY-NC-SA

Press Conference in Lima, Peru Photo credit: World Economic Forum / Foter.com / CC BY-NC-SA

Establishment news media and government are on a collision course in a number of Latin American countries.  At the heart of the conflict is government rejection of the classic role of an ideologically diverse press as a check on government power and as a forum of citizen deliberation.  The media, in response, charge that government actions constitute violations of international free press guarantees.  But that defense has been ineffective and has not resonated at the popular level.  All of the governments involved are democratically elected, and most espouse left-of-center programs of progressive reform aimed to benefit the poorest sectors and address other forms of inequality.

The most severe conflicts are in Venezuela and Ecuador, where aggressive government use of laws and lawsuits has dramatically diminished the influence of independent television and newspaper organizations.  The once strident news media, not unfairly characterized as the de-facto opposition, have been cowed, and are cowering.  At the same time, governments are embarking on the redistribution of the broadcast spectrum to favor community and state-owned (“public”) channels.  The Morales government in Bolivia has achieved the upper hand over the media as it builds its own media network.  The Kirchner government of Argentina is fighting a legal battle –with mixed success – to cripple the media empire of Grupo Clarín, the owner of the largest newspaper in Latin America and the largest cable network.  The conservative governments of Honduras and Panama are also on the freedom of expression watch list, indicating that the phenomenon is not purely a matter of ideology.

The polarization and growing government dominance represents a serious problem for democracy in these countries.  For all the harsh rhetoric on both sides, however, the overall threat to freedom of expression (measured in censorship, direct control of media and imprisonment of journalists) is far less than was the case during the rightist military governments of previous decades.  Still, it would be a mistake to limit our promotion of healthy democracy to the defense of the traditional “legacy” media institutions in these countries.  Government leaders, especially Presidents Correa of Ecuador and Kirchner of Argentina, have used (some would say misused) democratic arguments in criticizing the traditional media.  They charge that the concentration of media in the hands of the private sector (with ownership participation of banks in the case of Ecuador) is itself a violation of democracy, and that they are trying to “democratize” the media by delivering increased access to citizens in the form of public and community media.  Not surprisingly, these new media creations are beholden to the government and lack political independence.  But they are not going away.  In an effort to defuse the tension, institutions such as the Carter Center and others have developed an alternative conflict resolution approach that is quietly garnering support.  The idea is to promote an honest dialogue between governments and wide sectors of the media.  It would create a process to explore the substance of government positions as well as investigate alleged abuses. To this end, the Carter Center organized meetings earlier this year in Ecuador and Bolivia, and a conference was held at Columbia University’s School of Journalism this month bringing together leaders of government, media institutions and international organizations to debate media regulation and press standards as a platform to reconstitute consensus about media in democratic societies.