Planned strikes are the latest challenge to Mauricio Macri
“This strike is a demonstration of repudiation by our society of a government which has produced hunger, misery, unemployment and indebtedness,” declared Hugo Moyano, the boss of the truckers’ union, in a radio interview over the weekend. Union leaders called for a “complete rejection of the government’s economic policy”.
The strike will sharpen a confrontation that will last through national elections scheduled for October. Mr Macri is trying desperately to create economic conditions favourable to his re-election. The economy is not co-operating. Inflation in the year to March was 54.7%. GDP shrank last year and is expected to do so again in 2019. About one in three Argentinians is now living in poverty.
These numbers reflect the Macri government’s tacticalmistakes in correcting the populist policies of its predecessors, led by Cristina Fernández de Kirchner and her husband, Néstor Kirchner. A rise in American interest rates, plus a lack of confidence in Mr Macri’s reforms, led to a run on Argentina’s peso last year, which led in turn to a record $57bn loan from the IMF. It has so far failed to steady the economy.
Fear is mounting that failure will bring Ms Fernández back to power. Last week the peso lost 8% of its value against the dollar. The gap between yields on American Treasury bonds and those on Argentina’s dollar-denominated bonds, which reflects the market’s perception of Argentina’s creditworthiness, widened to more than ten percentage points for the first time since Mr Macri took office.
The market’s doubt “has no foundation”, Mr Macri insists. “We Argentines are not going back.” To ensure the truth of this claim, his government has adopted unorthodox economic policies that could test the terms of its deal with the IMF. On April 17th it announced ananti-inflation package, which includes controls on the prices of 60-odd staple foods plus delays in planned price increases for public services, such as transport.
So far the new measures have had little effect. Some items with frozen prices, such as milk, have disappeared from many supermarket shelves, and the government says that supplies of other items (including the national drink of mate) will not be available until the second week of May.
Till now the IMF has tolerated Mr Macri’s unorthodoxy, perhaps fearing that policy would become even less orthodox were he to lose the election. On April 29th the IMF agreed to allow the central bank to intervene earlier and harder to support the peso. It can step in even before the currency weakens beyond 51.5 to the dollar (the previous trigger point). And if the currency nonetheless reaches that limit, it can now spend more to push it up ($250m a day, rather than $150m). The falling peso has raised import prices and undermined the public’s faith in price stability.Propping it up, therefore, should help to pull inflation down. But it will also harm the competitiveness of Argentina’s exporters.
A bumper harvest this year may have reassured the IMF. Government revenues from a tax on exports of such commodities as soya and biodiesel will be 230bn pesos ($5bn) this year, about 1% of GDP, according to a new report by the board of trade in Rosario, an export hub. That is a near doubling in nominal terms from the level of 2018. That revenue increase will help reduce the government’s primary deficit (ie, before interest payments). Under the agreement with the IMF, this year the government is supposed to eliminate the primary deficit, which was 2.6% of GDP in 2018 (including infrastructure investment).
The extra money will ease pressure on the government as it waits for inflation to come down. The strikers and the Peronist opposition will seek to keep the pressure on. Ms Fernández is taking full advantage of Mr Macri’s plight. Although she has been indicted on several charges of corruption she leads the president in the polls. Her newly published book, a memoir-cum-campaign manifesto called “Sincerely”, is a best-seller.
Her political comeback is fuelling speculation that Mr Macri’s Cambiemos (“Let’s Change”) coalition will find someone more popular than he is to be its presidential nominee. The likeliest replacement may be María Eugenia Vidal, the governor of the province of Buenos Aires, which has 40% of the country’s population. The chaos planned by Argentina’s trade unions this week may boost her political career, as well as that of Ms Fernández.