Cristina’s long farewell

22/11/2014

The pot-bangers are back. On November 13th several thousand gathered outside the Casa Rosada, the president’s residence, in Buenos Aires to protest against corruption, runaway inflation, crime and above all the government of Cristina Fernández de Kirchner. Judging by their chants, “Argentina sin Cristina” (Argentina without Cristina) was their principal demand. Her approval-rating languishes at 30%. But the crowd was nowhere near as large as the million who rallied in 2013. That is because the country will soon be rid of Ms Fernández. She is not allowed to run in next year’s presidential election. Change will come, though just what sort is now hard to say.

The underlying grievances are as sharp as ever. The vice-president, Amado Boudou, has been indicted twice this year, once for corruption and once for fraud, but continues in office. Argentina’s economy is suffering from a combination of a global slowdown (see article) and a series of self-inflicted wounds, including the imposition of exchange controls, which worsened a crisis of confidence in the peso, and a debt default in July, which sapped confidence further and intensified the recession.

Official numbers say that the unemployment rate climbed from 6.8% in the third quarter of 2013 to 7.5% a year later. But it is really 1.5-2 percentage points higher, private-sector economists believe. Even for Argentines with jobs, living standards are dropping. The country’s inflation rate has soared from 28% in 2013 to an annualised 41% so far this year.

 In real terms wages were 6.7% lower this September than they were last year, according to ACM, an economic consultancy. “Salaries had already started shrinking in 2012 and 2013, but more or less kept pace with inflation,” says Maximiliano Castillo, a director at ACM. “This year things got much worse.”

Car sales have plunged by 35% from last year. Even more worrying is the slide in spending at supermarkets, which dropped by 4.3% year-on-year from September 2013, according to EconViews, a consultancy. That suggests that hard-pressed Argentines are skimping on food.

The government’s counter-measures are making matters worse. It has expanded state employment by nearly 5% this year to blunt the rise in joblessness. But the deficits needed to pay for this are being financed by printing pesos, which worsens inflation. Import restrictions to control the trade deficit are causing shortages of both consumer goods and the supplies that manufacturers need to maintain production. Unexpectedly, the “blue dollar” premium—the gap between the official rate for the United States dollar and the parallel free-market rate—dropped from 90% in September to 59% now. That improvement may reflect a currency swap with China, which has eased fears of a devaluation. But confidence in the economy and in the peso is still shaky.

The threat of social turmoil remains, too. December is a nervous month. It is when Argentines hoping to treat their families to holiday gifts and meals feel most stretched and summer heatwaves trigger power cuts. For the past two Decembers, police officers in various provinces have gone on strike for higher pay. Last year more than a dozen people were killed in looting during the police walkout. A week-long strike by police in Santa Cruz, starting last month, was a bad omen; it ended when the governor threatened them with sedition charges. Teachers in Buenos Aires province walked out on November 11th and 12th.

The next big test will come in January, when the government must decide whether to resume talks with creditors who hold bonds on which Argentina has defaulted. There is an opening, provided by the expiry on December 31st of the “Rights Upon Future Offers” clause of the bond contracts, which bars the government from offering one group of bondholders a better deal than the terms others received during earlier debt restructurings. Argentina defaulted rather than make an improved offer that had to be open to all bondholders. A deal with creditors could bring relief, however, by giving the country access to dollars, which would in turn allow it to ease controls on imports and on capital. But Ms Fernández’s government has sent mixed signals about whether it will talk to the bondholders who refused earlier deals.

The next presidential election, to be held in October 2015, will bring about a bigger change, with luck for the better. All three leading candidates say they would break with the populism and protectionism that have prevailed during the presidency of Ms Fernández and that of her husband, Néstor Kirchner, who governed from 2003 to 2007 and died in 2010.

The candidate closest to Ms Fernández is Daniel Scioli, the governor of Buenos Aires province, who belongs to her Peronist Front for Victory (FPV). But he is no clone. He is more pragmatic than the president. He would maintain the popular social programmes she introduced and would not reverse the nationalisation of YPF, the biggest energy company. But he says he would do a better job of fighting crime and inflation.

 He faces a charismatic rival in Sergio Massa, a congressman who broke away from the FPV last year, more to distance himself from Ms Fernández than because of any profound disagreement with her. He is a gifted speaker and an astute political operator. So far his candidacy has revolved more around his personality than his ideas.

The biggest and perhaps most encouraging change would come from Mauricio Macri, the popular mayor of the city of Buenos Aires and the only non-Peronist in the race. Republican Proposal, the centre-right party he founded, is pro-market and favours greater openness to global and regional trading partners.

There is no clear front-runner in the early opinion polls. Much will depend on how the economy fares between now and next October. Relief from inflation and unemployment would help Mr Scioli. Further misery would play into the hands of his rivals—and bring out the pot-bangers.

Correction: The original version of this article mis-stated the blue-dollar premium as of November 19th. It was 59%, not 70%, as we had written. This was corrected on November 24th 2014. Sorry.

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