Starting on the Wrong Foot
Repaying the debt would be difficult for any new administration, given Argentina’s horrendous policy landscape mired by cronyism, criminality, protectionism, and monetary instability. In Latin America, only Cuba and Venezuela stand out as more anti-capitalist than Argentina, which was ranked by the Fraser Institute as 146th out of 162 nations for economic freedom.Inflation is above 55 percent, and the economy contracted 3 percent in 2019. Over the past four years, 21,500 small and medium enterprises (SMEs), a pivotal source of employment, have shut down. This has led to an official 10.1 percent unemployment rate, and roughly half of the economically active population works in the informal economy. In addition, Argentina continues to scare away capital; $72.2 billion has left since 2015.
To be fair, Fernández inherited many problems from the Mauricio Macri administration (2015–2019). However, he also inherited incremental improvements from Macri: trade agreements with China and the European Union, the entry of low-cost airlines, and an end to the fixed exchange rate. Macri’s infrastructure investment brought an end to regular power outages. His tenure saw improved financial transparency and more reliable economic data, at least in contrast to the previous administration of Cristina Fernández de Kirchner, now Fernández’s vice president.Enter the Peronista President
Fernández inherited this foundation of at least a meek turnaround. He could have built on the small successes by accelerating tax and regulatory reform to foster SMEs—if only. Instead, this man harks back to the disastrous Peronista movement, the union-dominated legacy of Juan Domingo Perón, who held the office in 1946–55 and 1973–74.The impact is obvious. SMEs will be reluctant to hire anyone at all due to the increased burden, at least not on the books. The new government is hamstringing the very businesses key to any economic revival.
Argentine Central Bank President Miguel Pesce claims the administration’s policies will bring down inflation and increase economic growth. The central bank will lower interest rates—expanding the money supply—while a “social contract” between government, labor unions, and businesses will magically produce lower inflation. Pesce has declined to give any economic forecasts but asserts things will improve in 2020.
Argentine assets abroad, an estimated $300 billion, remain a key ingredient to any economic recovery and the continued payment of the debt. The repatriation of even 10 percent of this amount would both stimulate the economy and provide funds to service the debt.The new, higher wealth tax has had the predictable effect. Argentines with money are talking to consulting firms in Miami about how to get out entirely. Sardans says thousands are leaving the country, taking their capital, skills, and businesses with them.
Making an Enemy of the United States
The new government will need the help of the IMF to restructure its debt. To do that, it has appointed Martin Guzmán as economy minister. The 37-year-old economist is qualified for the immediate needs of the government: He specializes in helping countries deal with defaults due to high foreign debts.The atrocious track record of Argentine governments this century appears to be repeating like clockwork and continuing the long march toward isolation. The electorate has voted in politicos, backed by parasitic unions, eager to hammer nails into the coffin of Argentina’s economic competitiveness.
