Argentine President Alberto Fernández reached two years in office in December. He still has almost two years to go – more specifically 44% of his term, which is almost an eternity in Argentina‘s troubled politics.
Weeks ago some unconditional allies (“unconditional” because the president has a majority of “allies, but not so much”) stated that he intends to run for reelection next year. But, according to analysts, at the current conjuncture, this is nothing more than somewhat naive wishful thinking.
According to a survey by the Rouvier and Associates consultancy, Fernández’s approval rating, which in mid-2020 was 67%, is now 37%. Another poll, by the consultancy Poliarquía, indicates that only 8% of respondents believe that Fernández is the decision-maker in the government.
Vice President (and former President) Cristina Kirchner is seen as the powerful person in the government, who pressures Fernández to follow her wishes. And when he doesn’t follow her orders, Cristina “le serrucha el piso” (the same as “pull the rug from under someone’s feet“). That means that Fernández’s own vice-president is his main opponent.
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In the coming days, everything points to Fernández suffering a hard blow: the absence of part of the Kirchnerist party in the plenary to approve the agreement with the International Monetary Fund (IMF).
Since last year, Fernández has been negotiating with the IMF to define new deadlines for the payment of the country’s debt. However, each time he made progress in the discussions, Cristina hindered the talks with criticism against the IMF. Last week, finally, after much wear and tear, Fernández reached an agreement.
However, a month ago, the tension between the president and the vice grew after Congressman Máximo Kirchner, Cristina’s son, announced he was stepping down as leader of the Peronist-Kirchnerist bloc in the Lower House. Máximo declared that he did not agree with the president’s strategy with the IMF. Other Kirchnerist legislators followed the same path, directly criticizing the Economy Minister, Martín Guzmán.
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Thus, through her son, Cristina made official the position of the “cristinismo”, which has always opposed an agreement with the IMF and put in trouble the “albertismo”, the small wing of President Fernández, which now faces the imminence of a virtual internal rift in the government – something that had already been emerging since the government’s defeat in last year’s parliamentary elections.
It’s a real rift
General Juan Perón, the party’s founder, used to use a metaphor to explain the divisions within the party, something like: “When people hear the Peronists shouting among themselves, we are not fighting, but reproducing ourselves, like cats.”
Now, however, the shouts really mean a rift.
At this stage of the internal war, Cristina does not want the political and electoral burden that the new pact with the IMF would bring.
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If Fernández fails to convince Máximo Kirchner and his followers in Parliament to vote in favor of the agreement, the rift within the government would materialize, since this would imply a supposed “point of no return” in the relations between the president and the vice president.
The agreement will be debated and voted on in the Lower House and Senate in the coming days. In recent months a substantial part of the opposition, especially “Juntos por el Cambio,” the party of former President Mauricio Macri and Buenos Aires Mayor Horacio Rodríguez Larreta, has come out in favor of an IMF agreement. However, it began to change its mind in the face of the absence of many governing parliamentarians.
Now, the opponents are also considering absenting themselves. The opposition considers that there is no point in committing to an agreement that sectors of the government itself do not support. In other words, if Argentina‘s economic and social situation becomes more complicated this year due to the adjustment required by the IMF, the opposition doesn’t intend to be among those blamed. Juntos por el Cambio is also irritated by the text of the bill sent to Parliament, which contains blunt criticism against Macri’s government, which incurred a $45 billion debt with the IMF in 2018.
The opposition is also contemplating voting generically in favor of the need for financing from the IMF, but in that case, they would not vote on the items of the bill.
On the one hand, these groups don’t want to commit to the unpopular agreement; but, on the other hand, they also don’t want Argentina to default again and become, once more, a pariah in the international markets.
What the IMF agreement says
The IMF states that Argentina‘s inflation is high and persistent. Therefore, in the agreement, the IMF has determined that the Argentine government will need a full program of economic policies to combat it (something that no Argentine government has done concretely since the beginning of the century), which requires a prudent monetary policy. This will involve “printing” fewer pesos, a move thanks to which the government has maintained public spending, especially subsidies. The IMF has also determined that the government will have to reduce the transfers of federal funds to the provinces and state enterprises.
The most critical point of the deal, by the way, is the demand for a reduction of subsidies given to several public services, among them, energy. This is because Argentina has been subsidizing the energy of private electric and gas companies for 20 years, uninterruptedly, as well as gasoline. These subsidies have been maintained even when the country’s economy was growing. Economists criticize the various Argentine governments of the last two decades for not reducing the subsidies gradually. Last year alone, energy subsidies amounted to $11 billion, the equivalent of 2.4% of GDP.
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The cutting of subsidies is a very sensitive issue for the Argentine population since it would imply an exponential and abrupt increase in the cost of energy, gas, and fuel. These increases – depending on the sector of the population – could range from 22.6% to 100%.
In addition, the increase in tariffs will increase inflation. This adds more problems for Fernández, who has pledged to reduce the country’s inflation, the second-highest in the Americas after Venezuela.
The IMF agreement also stipulates that by December of this year the government will have to end the restrictive measures applied to the buying of dollars by citizens (the dollar, since the 1970s, has been the sine qua non refuge for Argentines in periods of crisis). The restrictions applied by Cristina, Macri, and also Fernández, have led to a redirection of Argentines to the parallel market of the American currency. In addition, the IMF wants the government to discourage the use of cryptocurrencies in Argentina, “with the aim of preventing money laundering.”
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The IMF program will last two and a half years. During this period IMF delegations will visit the country and carry out 10 inspections. That is, representatives from the Fund will closely review whether the goals promised by Fernández are being rigorously implemented.
What happens after the IMF deal will be approved
If the deal gets through all the hurdles in Argentina‘s parliament, it will still need to be approved, next, by the IMF board. As soon as the IMF board gives the OK, the organization will provide $10 billion for Argentina to bolster the Central Bank’s reserves. In total, the deal involves $45 billion.
The agreement with the IMF states that Argentina will have to have a primary fiscal balance by 2025. In addition, it projects a GDP growth of 3.5% to 4.5% in 2022. For 2023, the target is 2.5% to 3.5% growth. For 2024, from 2.5% to 3%.
In the inflation area, the projection ranges from 38% to 48% for this year, higher than Minister Guzmán’s initial estimate in the 2022 National Budget, which was 33%. However, the inflation forecast in the IMF agreement is lower than the 55% level estimated by economists.
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Fernández is the first in a long list of presidents, among them Peronists and non-peronists, who, instead of decreeing a deal, preferred to take it to Parliament. This is a way of sharing responsibilities: Fernández does not want to be – months, or years from now – the only one blamed for an eventual failure of the economic policy the country will have to adopt because of the IMF.
Analysts point out that the president used a speech that they sarcastically classify as “the resignation epic”. And they also maintain that Minister Guzmán makes a defense of the agreement as if he were a sick person in a hospital who celebrates staying in the ICU in order not to die.
This is the 22nd deal made by an Argentine government with the IMF in 64 years. That is an average of one deal every 3.2 years. If the Fund realizes that the government does not meet the targets, it will cancel the credits. In short: Fernández will have the sword of Damocles hanging over his head. Or rather, the next government, whoever it may be, will have it.
