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Argentina’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.Published in