The Times view on Argentina’s election: Perils of Populism
As president of Argentina from 2007 to 2015, Cristina Fernández de Kirchner took to travelling overseas on a private jet. She feared that if she went outside Argentine borders on the presidential plane it might, as a state-owned asset,be impounded and sold to pay the country’s international creditors. Despite presiding over this national humiliation Ms Kirchner was this weekend voted back into office as vice-president, to serve under the victorious left-wing presidential candidate Alberto Fernández. It is a mark of how low the fortunes of this resource-rich country have sunk that she has returned to office.
Mr Fernández will replace President Macri. When he took office in 2015, Mr Macri promised a pro-business turn in policy, marking a decisive break with Argentina’s history offinancial crisis and high inflation. Among his first acts was to float the currency, the peso, and abolish the capital controls by which his predecessors had sought to support its value. His bold plans have ended amid the sixth economic crisis that Argentina has suffered in the past generation. The number of Argentinians living in poverty has reached 35 per cent, up from 28 per cent just two years ago.
The task required much tougher austerity than Mr Macri had the congressional support to implement. He tolerated an inflation rate that was too high to maintain the support of international investors. This was not the fault of the “bond vigilantes” of left-wing mythology, namely investors who demand fiscal rectitude ahead of living standards. On the contrary, markets consistently gave Mr Macri the benefit of any doubt, despite budget and current account deficits of more than 5 per cent of GDP and an annual inflation rate of more than 20 per cent. Only last year, with emerging trade tensions between the United States and China, did confidence in the peso wane and collapse.
The central bank had no option but to respond with a series of interest rate rises, but these were insufficient to stem the slide in the peso. Argentina was forced to seek a loan from the International Monetary Fund of $57 billion. Even then, the risk of a default on Argentina’s foreign debt caused investors to withdraw capital and plunge the economy into further crisis. Mr Macri failed; the denouement is the resurgence of politicians who believe, in defiance of all historical evidence, that inflationary public spending and price and capital controls can support living standards.
It is a familiar story. The most basic rule of economics is that things add up. If a government spends too much, allows inflation to rise and puts taxes on its export sector, the losers will be people on low and middle incomes who cannot protect their savings by putting them in foreign bank accounts. The only sustainable way to support living standards is to cut spending and tame inflation. Latin America has not in the main fallen prey to the delusions of leftist economics of the type that have impoverished Venezuela, but its centre-right parties are struggling to present a coherent set of policies. In neighbouring Chile, President Piñera yesterday sacked his interior, finance and economy ministers after huge demonstrations.
Latin America benefited from a global commodities boom up to 2014, which too often disguised the necessity ofcontrolling inflation and liberalising labour markets. Mr Macri had a commendable message but stumbled in implementing it. Argentina will be the poorer for his failure.