Mission Impossible: Solving Argentina’s Economic Chaos

When I moved to Argentina in 2010, 1 Argentine Peso was worth roughly 25 cents of USD. The bills from the times when 1 Argentine Peso equalled 1 USD, before the socioeconomic crisis in 2001, were still in use. Although the largest bill, the 100 Pesos note, had lost a significant part of its value since 2001, in 2010, it would still get you a 35 km taxi ride from Buenos Aires city center to the international airport or a three course dinner in a nice restaurant. Today, you won’t get much more than a pack of chewing gum for the same 100 Pesos note and its value is going downwards. Inflation is not unusual in the Argentine economy; however, the pace of it has been extremely rapid during the last year and a half, placing Argentina on the top of the world inflation list. According to IMF, only Venezuela and Zimbabwe rank higher. [1]

The economic instability was not favourable for the incumbent centre-right president Mauricio Macri in the Argentine elections this year. The first round of presidential elections, which determines the two candidates for the second round, was held in August and showed a clear preference for Macri’s opponent, Alberto Fernandez. [2] His running mate, Cristina Fernandez de Kirchner (no relation) is the ex-president that, following the death of her husband (also an Argentine president), was in power for eight years before Macri was elected in 2015. The politics of the Kirchners established the so-called ‘kirchnerism’, a left populist political movement characterized by promotion of social rights and rejection of neo-liberalism and free trade.

The elected president, Mr Fernandez, was the Cabinet Chief of Nestor Kirchner’s (Cristina’s passed away husband) government. However, he abandoned the position the year after Cristina succeeded her husband’s presidency due to objection to her policies, [3] which makes the fact that he ran in the elections with her as his vice-president slightly confusing. While Cristina suggested that she will assist the country better as vice-president and that she is willing to do that since “leaders should leave their personal ambitions and vanities aside”, [4] there is reason to suspect that there is more behind her decision to step down and run as vice-president instead of president. The support for her decreased during her last mandate period due to the difficult economic situation in the country. Beyond that, she is suspected to have been involved in several cases of corruption. Interestingly, her announcement of running as vice-president instead of president was made just three days after one of the trials against her was initiated. [5] A good strategy to steer the focus of the elections away from the controversy around her, some might say. 

It should be pointed out that the Argentine society is extremely divided when it comes to politics. Although this is not a new phenomenon, the years of kirchnerism have driven its supporters and opponents further away from each other and deepened the split, referred to as ‘la grieta’ – “the crack” by the Argentines. During the last few years, the political scene has evolved into a sharp polarization with Macri vs. Cristina in the front. People vote for Macri to avoid Cristina and the other way around. Hence, introducing a not so well-known candidate to the presidential elections softens the sharp borders of the division and opens up possible doors to voters beyond Cristina’s usual supporters.

As expected from the first round of elections, Macri did not succeed in his bid for a second term as president in the second round of elections which took place on October 27th. Another factor, apart from ‘la grieta’, that plays a crucial role in Argentine elections is the state of the economy — especially since the crisis of 2001. As mentioned, the current economic situation in Argentina provoked high discontent towards Macri and decreased the likelihood of his re-election this year. Ironically, it was also economic unrest that helped him to victory when he got elected in 2015. Until then, Argentina had been governed by the Kirchners for more than a decade. It should be acknowledged that Nestor Kirchner had quite a mess of a country when he took office in 2003; a crisis-torn country in huge debt. His administration managed to stabilize the economy to a certain extent, however it didn’t take long before it started going back downwards. Despite Cristina de Kirchner’s efforts to hide the rising inflation during the last years of her administration through distorting exchange rates between the Peso and the USD and by artificially lowering the prices of some goods through government subsidies and price controls – it was obvious. The company where I was working, a provider of cleaning equipment, was stressing out over collection of invoice payments from their customers since, by the time they would receive the payment, it would be worth much less than when the invoice had been issued. We had to stop printing the price lists of the products and send them to the distributors in electronic versions via email because of the adjustments that constantly had to be made due to the rising inflation. What didn’t seem to rise as quickly as prices, though, were salaries. 

During the crisis in 2001, the Peso drastically lost its two thirds of its value overnight and banks refused people to withdraw what was left of their assets. [6] This led to a huge lack of trust in the Peso and made saving in US Dollars an appealing option for the Argentines. Instead of keeping savings in Pesos on an Argentine bank account, many people would simply buy US Dollars instead and keep them hidden somewhere at home. However, these habits became a target for Cristina’s efforts to retain the inflation. In 2011, her administration introduced capital controls that limited access to foreign currency. Several permissions were now required in order to purchase US Dollars and individuals were only allowed to buy US Dollars for 40% of their salaries. A few months later, this limit decreased to 25% and eventually, purchase of US Dollars was banned completely, except for cases of travelling and acquisition of certain assets. [7] These policies forced many Argentines, and mainly those of the lower classes, to abandon their habit of saving money in US Dollars, which often was their only means to avoid their salaries being eaten by inflation. 

The limited opportunity to buy US Dollars created a huge black market in which the price of a US Dollar increased further and further away from the official price. Still, the demand for US Dollars on the black market was high. Argentines would check for the possibilities to buy US Dollars everywhere — through Facebook posts, asking foreign friends, etc. It even happened once that a woman who attended to me in a pharmacy asked if by any chance I was looking to sell Euros or US Dollars because she saw that I was a foreigner. On top of the Argentines’ dissatisfaction with this policy and the declining economy in general, corruption became a more and more important topic — scandal rumours about Cristina being involved in money laundering started leaking out and her vice-president, Amado Boudou, was charged with corruption. [8]

In the middle of this economic turmoil and growing discontent, Macri and his slogan ‘Cambiemos’ — “Let’s change” — won the presidential election in 2015. Promising to lift the foreign capital restrictions imposed by Kirchner to put Argentina on the road towards ‘zero poverty’, he gave Argentines hope for change. The faltering economy had started to remind people of the darkness of the economic crisis in 2001 and any change of the prevailing economic policies was giving hope for better times. But as can be seen from the results of the elections this year, the faith in Macri as a saviour of the economy didn’t last for long. This is hardly surprising given the current situation of the country: the inflation is skyrocketing (even higher than under Cristina), the foreign debt has increased, the poverty level has reached a level that hasn’t been seen in the country since the crisis in 2001 [9] and the unemployment rate is higher than it has been for 13 years. [10]

I left Argentina in 2015 a few months before Macri got elected and didn’t go back to Buenos Aires until the beginning of this year. First, I was baffled by the fact that the amount of Pesos I had to withdraw to sustain myself for a week was higher than what I would spend during a whole month when living there. Then, after observing the city a little bit closer, another change was evident: increased inequality. If the lower classes were struggling to make it until the end of the month when I was living in Argentina, they were hardly making it at this point. I noticed more people living on the street, and several times when I was having something to eat outside, people would come over and ask me if I had any leftovers to give them, which very rarely happened before. At the same time, the city was looking more modern with WiFi in some of the public transport, a new metrobus, etc. Some of my friends would claim that they are better off now than under the Kirchners, and obviously, some people are.

It is hard to claim that Macri managed Argentina well during his term in office. [11] However, it has to be considered that many problems that came up to the surface during his presidency were problems that were already lying and boiling under Cristina. When Macri lifted the restrictions on the purchase of foreign currency as he promised during his election campaign, for instance, the official price of a US Dollar increased rapidly up to the one on the black market. While this may have made it seem like the Peso drastically lost much of its value, the case was rather that the official exchange rate was adjusted to reality after being held at an artificial level under Cristina. Furthermore, there is good reason to believe that her administration manipulated statistics on the country’s economy during her time in office. Many people raised an eyebrow a few years ago when Cristina announced that Argentina had one of the lowest poverty rates in the world — even lower than Germany, her Chief of Cabinet claimed. [12]

Sadly, left-wing politics in Latin America are often associated with this kind of manipulation and corruption. Countries that have witnessed socialist leaders draining their economies while becoming individually wealthier tend to end up with a part of the population becoming suspicious and hostile towards any kind of left-wing politicians. On the other hand, such politicians also tend to gain a lot of popularity through populist agendas. Needless to say, this tension between the skepticism towards left-wing politicians and the popularity of certain platforms causes deep polarization in the society. In Argentina, politics can barely be discussed anymore. The division between kirchneristas and anti-kirchneristas has split families and friends. Cristina, who faces trial on almost a dozen charges of money laundering, bribery and embezzlement, [13] while she is on the way back to power, is a polemic topic, to say the least. 

However, while it is obvious that a significant part of the votes for the elected president Alberto Fernandez were indirectly for Cristina and it is likely that his politics will be highly influenced by her, he is a new president in the end of the day. One can always speculate about which policies he will carry out, but only time will reveal the results. And, to be fair, there is reason to believe that Mr. Fernandez might come with a few surprises, as just a few years ago he was critical of Cristina. In an opinion column in the journal La Nación, he even accused her of lying and attempting to cover the responsible people for what is considered the worst terrorist attack in Argentina’s history. [14] Someone that goes from such an opposing stand against someone to chose her as his vice-president, claiming that they are “the same” [15] seems quite unpredictable to me at least. So, who knows? Maybe he is the one that will solve the ‘impossible’ mission that is Argentina’s economy.

Notes:

[1] https://www.imf.org/external/datamapper/PCPIPCH@WEO/WEOWORLD/VEN

[2] https://elpais.com/internacional/2019/08/11/argentina/1565528824_136426.html

[3] https://www.dailymail.co.uk/news/article-7643097/Argentina-president-elect-Alberto-Fernandez-faces-claims-just-puppet.html

[4] https://www.bbc.com/mundo/noticias-america-latina-48324940

[5] https://www.bbc.com/mundo/noticias-america-latina-48324940

[6] https://www.bbc.com/news/world-latin-america-14102858

[7] https://www.lanacion.com.ar/economia/cepo-cambiario-cronologia-de-estos-cuatro-anos-de-restricciones-nid1854739

[8] https://www.theguardian.com/world/2014/jun/29/argentina-vice-president-amado-boudou-cristina-fernandez-de-kirchner

[9] https://www.batimes.com.ar/news/argentina/macri-combats-greatest-argentine-poverty-rates-since-2001-crisis.phtml

[10] https://www.batimes.com.ar/news/economy/indec-unemployment-rose-to-106-in-second-quarter.phtml

[11] https://elpais.com/internacional/2012/12/17/actualidad/1355769445_585826.html

[12] https://www.infobae.com/2015/06/13/1734915-argentina-y-alemania-una-comparacion-incomoda/

[13] https://www.washingtonpost.com/world/the_americas/argentinas-cristina-kirchner-facing-corruption-allegations-mounts-unlikely-comeback/2019/07/28/3f3a31d4-a3dd-11e9-a767-d7ab84aef3e9_story.html

[14] https://www.lanacion.com.ar/politica/hasta-que-el-silencio-aturda-a-la-presidenta-nid1768893

[15] https://www.infobae.com/politica/2019/10/18/alberto-fernandez-cristina-kirchner-y-yo-somos-lo-mismo/