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Analysis
Argentina: dynasty and democracy

Argentina: dynasty and democracy

Kirchner, preparing elections, inhabits a parallel universe

by David Smith

Tue 16 Jun 2015

A world away from the upheavals over Greece, the politics this week in Buenos Aires will be worth watching.  The unfolding narrative over preparations for October’s elections will send signals to New York, London, Beijing and Moscow about whether Argentina represents an investment risk worth taking. Or not.

In theory, this is the week when the leading candidates to succeed President Cristina Fernández de Kirchner name their lists for the election to choose the next leader.

In reality, Argentina is waiting to see to what extent the president wants to remain the power in the land. 

Kirchner is expected to anoint a successor and hand-pick the team around him (it’s unlikely to be a female) – all in the name of maintaining her agenda, both economic and political.

She herself could yet decide to stay at the centre of political debate by electing to run to be a member of Congress, where she would almost certainly head the largest party. 

Or there’s the bizarre possibility that she will place her son Maximo, never elected to any office, the self-appointed leader of a youth wing of the Peronist movement, as vice-presidential running mate for her chosen successor.

Alternatively, she might insist on Axel Kicillof, her finance minister, the executor of a policy that has driven government spending, the fiscal deficit, and inflation sky-high, as No. 2 and economic guru to the next president. Inflation is officially 15%, but independent economists put it at 25-30%. So investors who see Argentina as a bargain-basement opportunity over the months ahead, beware. 

Some basic economic data highlight how much is going wrong.  This is despite governmental efforts to bury the bad news with official statistics that have caused bemusement and dismay at the World Bank and International Monetary Fund.

The fiscal deficit in the first quarter of this year – at $6.4bn – was three times that of the same period a year ago. For March the figure – $3bn – was six times higher than in 2014. Direct foreign investment was $8bn in 2014, against $63bn for Brazil, $44bn for Mexico, and $20bn for neighbouring Chile.

The export performance shows how much Argentina is falling behind the tradition of making its living from its natural resources and ability to feed the world. Exports this year, according to the Chamber of Commerce, are likely to fall to $63bn, down from an average $82bn between 2011 and 2013.

The government’s response has been to raise money through bond issues with breathtakingly high yields.  Argentina is raising 10-year dollar bonds at nearly 9%, compared with Peru’s 4.73% over 35 years. Paraguay, for so long Argentina’s poor neighbour, pays 4.15% for 15-year funding.

‘The bond-raising plan is as astute as it is perverse,’ according to one leading commentator in Buenos Aires. ‘Astute because it gives the president the cash to raise pensions, family allowances and subsidies to solidify her support vote ahead of the elections. Perverse because, with her debt, Kirchner is scorching the economic earth her successor will inherit.’

Economists concur that the biggest challenge for the next president is how to check the country’s grave macroeconomic imbalances with the least social cost, avoiding explosion at street-level. The world is hardly likely to hurry to the aid of the next government, especially given the alliances Kirchner has recently sealed with China and Russia.

The lead candidate of the ruling Peronist party, Buenos Aires Governor Daniel Scioli, promises ‘continuity,’ and speaks glowingly of the president’s son as a potential leader, along with Finance Minister Kiciloff.

His main opponent, Buenos Aires Mayor Mauricio Macri, may be pro-business, pro-markets, pro-fiscal responsibility, but even within his own team there are those who question whether he should fight to the finish for the poisoned chalice of handling the Argentinian economy.

In the meantime, the president and her team carry on regardless. This past week she herself, then her chief of staff, suggested that Germany has a higher percentage of people living in poverty than Argentina. This was an indicator, they claim, of the economic progress made during the 12 years the Kirchners, husband and wife, have run the country.

‘Laughable, maybe, but it reflects the parallel universe our leadership inhabits,’ according to one veteran economist in Buenos Aires. ‘The question is whether we return to the real world at the end of this year.’

David Smith, former United Nations Director in Argentina, is a member of the OMFIF advisory board.

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