Argentine Economics

The Argentine stock market has been tanking (losing 5.9% in two days) and the peso dipping on a confluence of scary news for conservative economists, businesspeople and—perhaps—the population at large. Roberto Lavagna, the economics minister widely credited with reviving the Argentine economy over the last three years, was forced to resign by President Kirchner. His crime? Not bad management or faulty policies, but failing to keep in line. Over recent weeks, he’s made the politically inopportune remarks that the companies used for infrastructure projects were operating as a ‘cartel’ and overcharging, thus insulting planning minister (and Kirchner buddy) Julio de Vido, and that the country’s high inflation (12%+ annually) was not only caused by businesses raising prices speculatively (as Kirchner has been saying) but also by union demands for pay hikes. As the new minister, Kirchner installed Felisa Miceli, widely seen as a talented economist but not as someone independent from Kirchner’s desires to please the people in the short term, no matter what, not even if it leads to greater pain down the road. Kirchner has since announced plans to bring together the country’s mayors in order to come to an accord to put together price lists and start “social control” of prices which might mean what have historically-useless price pegs down the road.

The reaction was swift and unpleasant. The U.S. signaled a “wait and see” attitude (with analysts worrying that this will hurt Argentina’s negotiations with the IMF) while the Spanish government seemed to express worry. According to Carlos Malamud, an economist at the Real Instituto Elcano quoted by La Nación, “The change is not a good signal. Lavagna was the ideal counterweight to Kirchner’s excesses.” An anonymous analyst quoted in the same article said, “History has shown that the only things that work against inflation are painful; all else fails. The impression is that, in election mode, Kirchner doesn’t want anything that hurts and that is easier with Miceli than with Lavagna.” Whether pain=good is true is open to debate, but the government has shown little willingness to push tightening policies that would tarnish his left/populist image.

Further exacerbating the situation is the strike at Aerolíneas Argentinas, a former state company now owned by Spaniards. The strike—and the fact that the head of the air transport section of the ministry of state, Ricardo Cirielli, leads one of the airline unions—has led some to worry that Kirchner’s government will push for the “re-Argentinization” of the airline, further alienating those thinking of investing in the country. Political analyst Joaquín Morales Solá examines this and other issues in his column of today, “Inside, Discipline; Outside, Chaos,” the title of which refers to Solá’s belief that Kirchner insists on cabinet discipline over solid national policy.

Also:
Argentine President Ousts the Architect of the Country's Economic Recovery [NY Times]