Don’t Cry for Cristina, Argentina

 

evitaycristinaArgentina’s President Cristina Fernández de Kirchner’s final days in office are in sight. On October 25th, Argentina will go to the voting booth to elect a president whose name isn’t Kirchner for the first time in twelve years. For many Argentines, this day can’t come soon enough.

The Kirchner movement, which commenced under the late Néstor Kirchner and is now known as Kirchnerismo, has marred the nation with a toxic mix of failed populist policies, crony capitalism, the depletion of national reserves, and unrelenting corruption. According to the 2015 Bloomberg Misery Index, only Venezuela outranks Argentina in misery (measured by the unemployment rate plus the change in the consumer price index). Just like Nicolás Maduro in Venezuela and the Castros in Cuba, the guardians of Kirchnerismo are quick to point the finger at anyone but themselves for their failed policies — and they usually point it at the United States. But the blame starts and ends with the Kirchner family.

In 2001, Argentina experienced the largest financial crisis in its history when the country defaulted on its sovereign debt. Economic growth had already been negative in every year since 1998, but the ensuing devaluation of the Argentine peso caused the economy to contract by 11 percent, propelling the relatively unknown Peronista candidate, Néstor Kirchner, into the presidential office in 2003. In his first term, he expanded government to the point that the state owned 23 of the 25 largest employers. He regulated prices on private industries via fixed tariffs, effectively stunting direct foreign investment, and heavily subsidized the energy and transportation sectors. These subsidies remain unsustainable and, in reality, only benefit the rich. As inflation reached 15 percent during his first term, he did little to curb it.

Instead of running for re-election in 2007, Kirchner passed the torch to his wife, Cristina, known as CFK. She doubled down on her husband’s policies even as the global financial markets hemorrhaged during a historic financial crisis. Instead of changing inflation policies, CFK simply changed inflation numbers. She put into place even more arduous capital controls and, as the Latin Business Chronicle stated, “the largest number of protectionist measures worldwide.”

In late 2008, the CFK regime nationalized Argentina’s private pension system, allowing many of her Kirchnerista comrades to snatch board positions at a variety of private companies. Since then, the administration has seized the country’s largest airline, Aerolíneas Argentina, and dozens of passenger and cargo rail lines. Additionally, CFK expropriated 51 percent of YPF, Argentina’s largest oil producer, from Repsol. (She settled with the Spanish energy conglomerate in 2013). And through the Argentine courts, she successfully dismembered the nation’s biggest media company — not incidentally, vocal Kirchner critics — Grupo Clarín.

In 2012, instead of settling with the remaining Grupo Clarín bondholders, known as “the holdouts,” she chose to appeal a US Appellate Court’s decision to award them a US$1.5 billion debt payment. In CFK’s mind, this was good politics, given the upcoming 2013 legislative election. But rather than rally around her, Argentina voted against CFK’s Frente Para La Victoria party (FPV), eliminating any chance of a Kirchnerista super-majority (Some believe she hoped to use a super-majority to amend the constitution so that she could pursue a third presidential term). Her decision was also detrimental to a country in need of capital to shore up its budget: While fighting in the courts, Argentina couldn’t access foreign credit markets, forcing the central bank to print money to cover fiscal deficits. By the time the US Supreme Court elected not to hear the case, in mid-2014, inflation was trending toward 30 percent.

Perhaps the most damaging aspect of the Kirchner reign may have been her failure to capitalize on a ten-year commodities boom in South America. Populist economic policies based on currying favor with voters, rather than sound principles, never work out in the long run. (See: Venezuela). Argentina, with its rich soil and abundant natural gas, had the potential to become a major global player in energy and agriculture exports. But high taxes and price controls curbed investment and profitability, ultimately converting the country into an energy importer. Now commodity prices have peaked. China is scaling back imports, and foreign credit is more expensive.

With her days numbered, CFK leaves the next president almost nothing by way of national reserves, but saddled with an even bigger government in the form of 15,000 new public sector jobs. While the central bank reports international reserves of approximately US $32 billion, most economists mark reserves closer to a net US$10 billion. They warn that these may be fully wiped out by the end of the year.

Despite all of this, there is good news for Argentina. First, and this can’t be stressed enough, is Cristina is leaving. Second, investors believe that all three major presidential candidates, even the FPV candidate Daniel Scioli, are willing to make the changes necessary to reverse years of damage caused by CFK’s policies. All three promise to settle with the holdouts, implement measures to lower inflation, reduce subsidies, and unlock capital controls. When this occurs, Argentina will see the light at the end of the tunnel.

Cry for CFK’s imminent departure if you must, but let them be tears of joy.

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  1. Manfred Arcane Inactive
    Manfred Arcane
    @ManfredArcane

    Very educational, thanks.  Love this stuff on Ricochet.

    PS. Peter Zeihan chose Argentina as one of the few countries, along with the US, who would prosper over the next 50 years.  He probably looked at the fundamentals, not the present government when making that forecast.

    • #1
  2. MarciN Member
    MarciN
    @MarciN

    It will be interesting to watch Argentina recover.

    I have no doubt that our domestic home-grown Democrat-Socialists were friends with the socialist Christina and her cohorts. I wish we could put an export ban on the Democrats. :)   They cause trouble and pain everywhere they go.

    • #2
  3. James Of England Moderator
    James Of England
    @JamesOfEngland

    MarciN:It will be interesting to watch Argentina recover.

    I have no doubt that our domestic home-grown Democrat-Socialists were friends with the socialist Christina and her cohorts. I wish we could put an export ban on the Democrats. :) They cause trouble and pain everywhere they go.

    Argentina’s fascists were often less bad than their communists, but it’s not really America’s fault that the Kirchners turned out how they did. They’re terrible, but still less bad than Peron, Galtieri, and others from some way down the “20th Century’s worst leaders” hit parade.

    Kirchner was corrupt, incompetent, and partisan, but she had the virtues of not being terribly into policy and of being an ineffective reformer. American and European efforts also repeatedly pushed her closer to the role of a law abiding leader and may have been helpful in maintaining the democracy that will see her go.

    • #3
  4. MarciN Member
    MarciN
    @MarciN

    James Of England: American and European efforts also repeatedly pushed her closer to the role of a law abiding leader and may have been helpful in maintaining the democracy that will see her go.

    That is nice to hear.

    • #4
  5. Claire Berlinski, Ed. Editor
    Claire Berlinski, Ed.
    @Claire

    Very interesting. I’m wondering how law-like it is that massive financial crises will precipitate roughly fifteen years of “failed populist policies, crony capitalism, the depletion of national reserves, and unceasing corruption.” Exactly the same trajectory in Turkey, after all. Similar patterns after the Asian financial crisis, particularly in Thailand.  And obviously, we’re seeing it in the US and Europe in the wake of 2007. I’ll be curious to see if this really is the beginning of real improvement in Argentina: I don’t see the light at the end of the tunnel for any other country that’s experienced this in the past 15 years, yet, although South Korea’s a notable exception.

    • #5
  6. Johnny Dubya Inactive
    Johnny Dubya
    @JohnnyDubya

    I never get tired of saying this (though I sometimes feel like a voice in the wilderness), so here goes:

    The parallels between the Kirchners and the Clintons are disturbing.

    Bill Clinton originally ran with the promise that the American people were getting “two for the price of one”.  His wife was a key member of his administration, leading the failed healthcare reform effort.  She was also an advisor behind the scenes.  They were openly a team.

    Electing Hillary Clinton to the presidency would (1) make us look like Argentina, with Bill “passing the torch” to Hillary (albeit after a significant interregnum); (2) be a violation of the spirit of the 22nd Amendment; and (3) return a disgraced, impeached, disbarred former president to the White House as a “co-president” for four or eight years.

    We already have had eight years of the Clintons, and they weren’t pretty.  The U.S. presidency is no place for a “power couple”.  We are better than that.

    In a sane world, a Hillary candidacy would be a non-starter for these reasons.

    • #6
  7. Vorpal_Pedant (the Canadian) Inactive
    Vorpal_Pedant (the Canadian)
    @VorpalPedanttheCanadian

    Toute nation a le gouvernement qu’elle mérite (every nation gets the government it deserves – Joseph de Maistre).

    I love Argentines, and their views on life (if not on the Falklands).  They are a wonderful, happy people – and the most beautiful woman in the world works at the Avis desk in Cordoba.

    I did a bit of business there, and found that the business class is as sophisticated, honest and capitalistic as any in the West.  It is not like the rest of Latin America – they see themselves as a developed country that can rival any in Europe.  A bit fanciful, perhaps – but only a bit.

    This truth makes their voting patterns all the more vexing.  They love a populist argument, especially one that plays into their (considerable) pride.  I have found that many of their laws are comparable to countries of similar sophistication.  It is their systems that are a mess, primarily:

    • their electorate has not embraced free trade, and sees tariffs as a perfectly normal part of life;
    • their land title registry is a disaster;
    • their banking system is an overregulated, corrupt chokepoint.

    These are serious problems – the latter two undercut private property rights – but I am of the view that a single President could clean it all up, with some steely determination, luck, and managerial competence.  Not sure if that’s on offer.

    • #7
  8. The Reticulator Member
    The Reticulator
    @TheReticulator

    Vorpal_Pedant (the Canadian): their land title registry is a disaster;

    I’d be interested in learning more about this point.

    • #8
  9. John Penfold Member
    John Penfold
    @IWalton

    Argentina will recover, then decline again because they are all Peronists, even the Pope.  It’s a disease from which few recover.  That is my concern about the US as we’re becoming Peronists.    If we scrape this stuff off, and scrape deeply there is hope for us because we’re still built on common law.

    • #9
  10. Scott Myers Inactive
    Scott Myers
    @ScottMyers

    Claire Berlinski, Ed.: I’ll be curious to see if this really is the beginning of real improvement in Argentina: I don’t see the light at the end of the tunnel for any other country that’s experienced this in the past 15 years, yet, although South Korea’s a notable exception.

    Claire, I don’t disagree with you.  But in the short-term, I’m bullish on Argentina as any change away from CFK and kirchnerismo/peronismo is good.  However in the mid to long-term, you are right.  Your guess is as good as mine.  Argentina has a long history of steep ups and downs and perhaps my optimism is blinding reality.

    • #10
  11. Vorpal_Pedant (the Canadian) Inactive
    Vorpal_Pedant (the Canadian)
    @VorpalPedanttheCanadian

    The Reticulator:

    Vorpal_Pedant (the Canadian): their land title registry is a disaster;

    I’d be interested in learning more about this point.

    Hi Reticulator,

    “Disaster,” on reflection, might have been a bit hyperbolic, but there are problems.  Urban land purchases – condos in Buenos Aires – are cumbersome and they fleece you, but the title is ok as far as I can tell.

    Rural title, though subject to the same system, has many areas where title is unclear.  State and national registries can conflict; surveys conflict; recent and distant past “smallholder” or indigenous rights can kick in, even if an area is not being farmed today.  Foreigners can’t export food grown on land within some close distance (50 miles or so) of a land border – a law so obscure most Argentines I met were surprised to hear of it.  The title system is okay, but rural title itself is often up for challenge.

    • #11
  12. The Reticulator Member
    The Reticulator
    @TheReticulator

    Vorpal_Pedant (the Canadian):Rural title, though subject to the same system, has many areas where title is unclear. State and national registries can conflict; surveys conflict; recent and distant past “smallholder” or indigenous rights can kick in, even if an area is not being farmed today. Foreigners can’t export food grown on land within some close distance (50 miles or so) of a land border – a law so obscure most Argentines I met were surprised to hear of it. The title system is okay, but rural title itself is often up for challenge.

    Thanks. I was just curious as to whether it provided any context or comparison to the rectangular survey system in the U.S.  It was a product of the Enlightenment and regularized and rationalized the system of land boundaries and therefore land titles, which in turn gave great security to those people of limited means (who couldn’t afford expensive court battles) who bought land during the settlement days.

    It is said that in Ohio, to this day, the lands in the Virginia Military Tract which were surveyed by the old system of metes and bounds result in more boundary disputes being brought to court than in the neighboring areas that were surveyed and sold under the rectangular system.

    • #12
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