Argentina’s President Triggered Measures to Stimulate Consumption

RIO DE JANEIRO, BRAZIL – Less than two months before the presidential election in Argentina, economists and political analysts say that President Mauricio Macri is weakening every day and today has less chance of remaining in power, despite recent attempts to stimulate consumption and regain prestige with the middle class.

The turmoil that hit the markets last week with the moratorium on part of the domestic debt as its maximum point, has as its backdrop a fiscal deficit that, after four years in office, was not reversed as promised by Macri.

On the contrary, in recent weeks, the president has activated measures to stimulate consumption: he has promised a salary bonus to all civil servants and has cut the tax that is levied on food, among other measures.

On Friday, Aug. 30th, he offered to increase the minimum wage by 35 percent to compensate for inflation that reached 54 percent in the 12 months prior July. The workers asked for more.

Since June, Macri has maintained a policy that subsidizes payment 12 times without interest on credit cards in about 200 retail chains in the country, the so-called Ahora 12.

The program is backed by resources that banks should leave deposited with the central bank, but were released to inflate the money supply, at the direction of the government.

Fausto Spotorno, an economist with the consulting firm Orlando Ferreres & Asociados, said bank credits are expected to contribute 0.2 percent of GDP (Gross Domestic Product) this year, but this will not be enough to get the economy off the path of recession, with a 1.7 percent drop in 2019.

“These are measures that do not generate impact because they are small and because the debt problem depresses the economy.

For economist and consultant Marcelo Elizondo, Macri has assumed a mistaken economic strategy, which has led to the current financial crisis. Instead of dealing with the public deficit, he incurred more indebtedness, first to private creditors and then to the IMF (International Monetary Fund).

Argentina’s public debt jumped from 52 percent to 90 percent of GDP during his term in office. “What can Macri do with this crisis? Not much; it can contain its effects, but it cannot solve the problem. Not paying bonds on maturity is a response. Later on, it may impose restrictions on access to the dollar. In any case, these are ancillary measures that do not solve the underlying problem,” Elizondo said.

Economic uncertainty affected politics when Macri appeared far behind opposition politician Alberto Fernández, whose vice president is former president Cristina Kirchner. The obligatory primaries were announced last Nov. 11th, and the polls showed Macri three points behind Fernández. However, he lost 47 percent to 32 percent.

The very different political scenario from that predicted by investors overthrew the markets in the following days and increased the odds on a Fernández solution, given the favoritism he assumed in the electoral race.

The Peronist politician, however, has avoided giving answers. After the moratorium on Wednesday, Aug. 28th, he said that Macri would be “counting the days” to leave office.

“We are living an unprecedented political situation caused by the primaries, which defined the winner long before the election and long before the inauguration. This in a country of precarious economic stability can cause an eruption at any moment. Macri no longer has a chance to turn the tables and does not want to accept it,” says political analyst Marcos Novaro.

Economists, however, are frustrated by Fernández’s lack of words as he has chosen to criticize Macri and the IMF itself because, according to him, they would do anything for re-election – during the current government, the Fund released a US$57 billion loan to Argentina.

Spotorno said economists are hoping for an à la FHC-Lula exit in 2002, when the two together negotiated a new bailout by the Fund.

“It is essential that Fernández says something. We have no idea if he and Macri will wake up to the country’s most serious problems, but without it the economy will not work,” he said.

Elizondo sees another strategy among the Peronists. “Fernández doesn’t have to respond to the crisis, and that’s his strategy, to let Macri deflate completely,” he stated.

The presidential elections are scheduled for Oct. 27th.

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