Argentina is facing a serious economic crisis that resembles the situation of lots of countries in the world. Low value of national currency, high inflation and an economy open to capital flight and import flooding. All this is accompanied by a conprehensive agreement with the International Monetary Fund (IMF). The people already have started to protest against the conomic situation, and the Minister for Economy recently resigned.
On the country’s economic situation, we spoke with Rodolfo Pablo Treber. Treber is an economic analyst who works for the Central Bank of Argentina. He is also political secretary of the group Social 21 La Tendencia and a collaborator of PIA Global.
What is your understanding of Minister of Economy, Guzmán’s resignation and everything that followed?
The resignation of the Minister of Economy has to be seen as an almost logical step, an inevitable consequence, of having accepted the pact with the IMF, of having validated that scam that meant the debt that never came to benefit national development, that therefore could be classified as odious debt. It could have been litigated before it was accepted, validated and agreed upon.
The pact with the IMF has fiscal adjustment goals and when that happens it can be done in a covert way through an inflationary process. That ends up impacting the pockets of a population that was already impoverished and whose purchasing power is crushed down.
The social crisis that is emerging in Argentina, which is seen in the streets, in the discontent, in the crises of political representation visible both in Juntos por el Cambio (Together for Change) and in the Frente de Todos (Front for All), does not find a solution except leading to internal conflicts and changes of ministers.
The reality is that the fiscal adjustment that was being made in Argentina was done using inflation and that inflation, as a result of the increase in commodities in the world, is now at 70% year-on-year. And there is no Minister of Economy that can last in a country that came from January 2020, the begin of Alberto Fernandez’s term, until May according to the latest official data, with a trade surplus of more than 32 billion dollars.
In other words, 32 billion dollars more entered the country than those that left due to imports. However, Argentina is in a process of fiscal adjustment and shortage of foreign currency, it is an unusual thing. Why is this happening?
IMF imposed trade agreements are cause of economic crisis
Because the agreement with the IMF not only made it necessary to pay the interest on the debt, but also made it necessary to maintain what they call market freedoms, which is that private parties can pay their private debt abroad, that is, they can transfer foreign currency, that the Argentine foreign trade in its eagerness to export more dollars is free to import merchandise. Therefore there is no correct administration of foreign trade, the dollars end up going through the channel of imports. So the trade agreements imposed by the pact with the IMF are the cause of the economic crisis. It is an economic model that the IMF installs, it is not only the negotiation for a debt, it is the economic and productive model that the IMF consolidates in Argentina, which is the extractivist export model, that always has this consequence.
This ieads to an increase in exports – looting and extractivism – and at the same time to an increase in imports and capital flight. Then that explosive combo blew up someone who came to accomplish that goal. Guzman came to carry the pact with the IMF to its end, leaving an economic dependency installed on a multinational organization that responds to the United States. And no other result could be expected other than an electoral defeat, as it was and as it will be in the event that the economic course is not changed.
You just said that the fiscal adjustment was made through inflation. How does that work?
There is a way to explain it without going into technical issues. Inflation is the general increase in all goods and services. These goods and services have a high tax burden that is around 40-50% of the final value. So when there is inflation, tax collection also rises. And what happens with the monetary issue, with the salaries that go directly to consumption, to the demand for goods and services? They never grow because only 4 out of 10 Argentines work formally. That is to say that only 4 out of 10 have the possibility of matching inflation, something that did not happen this year because all the unions negotiated downwards. In other words, purchasing power was lost with inflation.
Even if an adjusment of salaries to infation would have been achieved, only 4 out of 10 would not suffer inflation. The remaining 6 out of 10 Argentines of working age and health, that is, 60% of the economically active population works informal, illegal or depending on an assignment, suffers a real adjustment in their purchasing power.
Therefore, there is a monetary issue for the growth in demand that is always lower than the increase in tax collection. In every inflationary process there is a fiscal adjustment, it is a liquefied way of doing it. Some brutals would do it, as Patricia Bulrich did in 2001, reducing 13% of pensions. Others would do it by reducing the budget in education and health.
“Raising pensions by 40% and inflation by 70% is eating the purchasing power of the retired”
But this government, as it came to power with the Peronist party cartel and cannot do something like that, it chooses the path supported by an inflationary process, which is ultimately the same thing. Because if they raise retirees by 40% and take inflation to 70%, they are eating their purchasing power in the same way as if they were reducing their salary.
The IMF wants a fiscal adjustment and the government decides how. And it is an adjustment that does not affect some interests, because tariffs were not increased, withholdings were not increased, that is, it does not affect the export sector. And it doesn’t touch the financial sector either.
A clear example: these two days of bank runs in Argentina, the Central Bank, in order to contain the price of bonds and public securities in order to ensure the profitability of private banks, went out to buy 580 billion pesos in bonds and in letters. 580 billion pesos of direct monetary issue to contain the fall in bond prices and thus ensure the profitability of the financial sector. Here, there is no fiscal problem, there you can issue freely, the amount you want and in the term you want. But when we don’t talk about the export sector and the financial market, which are two sectors that go hand in hand and dominate national politics, everything else falls is adjusted.
What do you think the change of Minister can change the economic situation in the country?
A clarification must be made. The structural problems of Argentina are not going to be solved with name changes. In principle we could say that Silvina Batakis, her history, her speech, her political acts in the province of Buenos Aires show a person who comes from the Justicialist Party and who may come to have ideas closer to ours in relation to the increase in production, to fight inflation by increasing supply and not by decreasing demand, a person who believes in a strengthened and protected internal market and in protectionism.
But the economy is always marked by a strong political orientation. And the political orientation is the one she issued in her speech to reassure the markets during her inauguration: to follow the agreement with the IMF and the incentive for exports.
Those are the pillars ordered by the IMF and which Alberto Fernandez accepts. So it is very difficult to maneuver and twist the course of this economy in crisis without changing that. If you do not go to a model that is not one of fiscal adjustment and continue exporting with the transnationals, which generates import agreements – to buy manufactured products – the country’s capacity to generate employment will continue to be destroyed.
“We import unemployment”
In the export model, who buys in turn sells to the country from which he buys. We sell soybeans and they sell us auto parts, toys, mechanical parts, etc. In the final equation, we can even win, in terms of the amount of foreign exchange, but in terms of labor we lose. So what we do is import unemployment, what ends up happening is that the internal market never grows.
You can change the economy minister 100 times, but if your political framework, which is what guides the economy, is the agro-export model and the pact with the IMF – the truth is that although I place much more trust in Silvina Batakis than in Guzmán, who did not live in Argentina and came from studying in England and the United States – the political framework always determines the economy. That is why we speak of political economy and economic policy.
If you are within the framework of the export model, to facilitate foreign investment and to comply with the fiscal goals of the IMF, what can you do? What needs to be done is to protect the internal market, break export and import agreements, which is precisely what the pact with the IMF prohibits. That is the real objective of the debt, of the scam. It is not the collection of interest, if they issue the money, they are not interested. What concerns them is to continue using the country as a factory, to be able to obtain natural resources and raw materials at low cost and place their manufactured products, to have a captive market for their products and to maintain the level of employment in their countries.
Until that is broken, it is impossible to carry out an endogenous industrialization process, a growth of the internal market, the generation of genuine employment within the country, which is the true solution to our problems. What Alberto Fernandez is doing is giving continuity to Mauricio Macri’s project, which is basically a process of deindustrialization and impoverishment of Argentina.
Taking into account all this context, what is the perspective that the country has with the new cabinet and before the remainder of this mandate?
Well there are two options. For me clearly what is seen in the social environment, if you keep trying to manage this economic model in a better way or in a less bad way, perhaps it will improve a little. I believe that Batakis is going to manage better than Guzman, apart from the fact that she is not going to be able to change the economic structure from the ministry because that is a political decision.
Elections will be lost if the economic course is not changed
I think she is going to manage better because she has contact with the world, while Guzman was from the financial world. It will be better but it will not change course and, therefore, it will not be possible to modify social unrest.
Therefore, any alternative, which is generally the one directed by the economic power, is the one that will win in the next elections. Generally, the economic situation determines the outcome of the elections and if this continues, the people will decide to change, and anything can come out of the change. That is why so many disruptive characters appear both on the left and on the right in an exacerbated way. That is a symptom. That is a possibility, the defeat for not changing the model. Because the path is the path of the IMF that leads to certain defeat. The Argentine people changed from Macri to Alberto Fernandez because they wanted to return to a national economy, to what Peronism has accustomed us to in Argentina, less and less because as Peronist governments go by they increasingly resemble liberal ones.
And the other option is that there is a political decision by a sector within the Frente de Todos to change this political course, to confront the internal conflict that should have occurred before the pact with the IMF, but also to turn its back on the plans of fiscal adjustment of the IMF, to that liberalization of trade that the IMF proposes and demands and obliges for the Argentines.
If this enormous political conflict is not faced, there will be no electoral possibility for the Frente de Todos.
In addition, this enormous conflict occurs in a geopolitical context that also exposes the government’s ideology and that speaks of the FDT’s action with Peronism. Let us remember that Perón comes to government in opposition to the US plans and with plans of national industrialization, as summarized by Braden, the US ambassador, than.
Peronism was born anti-imperialist and today, the government of Alberto Fernandez, with the pact with the IMF, with the interventions in different events, positions itself geopolitically on the side of the United States and breaks with that tradition of Peronism. The national camp and the popular masses see that as a betrayal.
If things go wrong economically, you betray the historical line of Peronism and on top of that you miss the opportunity that a multipolar context gives you, of opening markets that were previously closed to Argentina. You don’t have to be a great political analyst to see what is going to happen: To lose the elections and I think, even a major defeat is possible if the course is not changed.
This interview was previously published by Noticias PIA in spanish. Original text can be read here.