Opinion: Economic crisis in Argentina accelerates the political pace

By Florencia Donovan

RIO DE JANEIRO, BRAZIL – (Opinion) The situation will not give rest to the president, whose weakness is perceived by his own people and others; in the red circle they believe that a change of political sign is inevitable in 2023.

Investors are certain: everything that comes to President Alberto Fernández from now on will be worse. The weakness of the president’s leadership is perceived by people inside and outside the country.

Not even the Callao faction, which Fernández created in 2017 and which includes some of the names that accompanied him long before Cristina Kirchner nominated him as a candidate, meets weekly, as it did until a month ago.

“What El Cuervo says (for Andrés Larroque, who said it was not possible “to govern with five friends”) is not so far-fetched. Alberto decided to create a group that says yes to everything. Since the signing of the agreement with the IMF, the unpleasant situation in the room has only worsened,” said one staff member who could not hide his frustration.

The economy will not give Fernández a reprieve. The establishment is watching closely as the president of the Chamber of Deputies, Sergio Massa, warms up. He is expected to include among the work priorities he will propose in a sort of Argentine Moncloa pact, the new hydrocarbons reform bill circulated Wednesday among oil companies and a proposal to boost lithium mining.

Wall Street consulted local bankers on Massa’s progress. Investors are quick to construct stories; they need to believe in something that helps them justify deals with dubious results. In reality, the differences in the Frente de Todos remain as great as ever.

No one knows how they will ultimately be resolved. The promise of a Moncloa pact must seduce the same Congress that, faced with high commodity prices, is unable to pass a law to promote agriculture, or that cannot even agree on the composition of some important commissions.

In the red circle, they believe a change in political sign is inevitable in 2023. Many are already discussing early support for one of the two opposition figures they believe have the best chance of succeeding Fernández: Patricia Bullrich and Horacio Rodríguez Larreta.

Recently, the balance of power within the establishment has shifted slightly in favor of the former, in line with recent public polls: it is considered more likely that she will be able to capture the votes that the opposition is currently losing to candidates like Javier Milei, and it is also believed that she will tackle the reforms that all the manuals say Argentina should undertake.

Bullrich is not wasting time and is making the most of her momentum: on the agenda of her trip to the United States next week are stops in Washington – she will meet with key representatives of the U.S. Treasury – and on Wall Street, where she will meet with investment funds.

Larreta, whom the establishment singles out for his appeal to consensus and his successes as a manager, did the same in Europe: in his meetings with Spanish businessmen, he made no secret of his presidential ambitions. Both also indicate that his economic policies – unlike Mauricio Macri’s – will be shock policies.

On the economy, Bullrich relies mainly on deputies Luciano Laspina and Carlos Melconian; Larreta favors Hernán Lacunza, who continues to bring in cadres with whom he meets on Mondays near the Círculo Militar, in the Retiro area.

Among those who attended last Monday’s meeting were banker Gabriel Martino, economists Rafael Di Tella and Ernesto Schargrodsky, former BCRA vice president Gustavo Cañonero and advisor Miguel Ángel Arrigoni.

Fernández’s calls for dialogue have failed to break through the reticence that has prevailed in the corporate world for months. Businessmen and investors agree that there is still no plan that sets out a clear short- and medium-term horizon.

Even the few guidelines offered by the IMF agreement are now in question. With the exception of mining companies, multinationals continue to seek to reduce their exposure to the country. For example, UBS Bank has just decided to close its local office from which it served other countries in the region.

It hardly matters that it was one of the most active players in the last debt restructuring processes in Argentina. It faces the same fate as so many others that have already done the same.

In the economic team, the expectation is that there will be no problems in the first review of the agreement with the IMF, which the organization has brought forward to May. Finally, the fulfillment of the objectives will be assessed by March, the first quarter of the year.

The numbers are closed. In the months that follow, the story is different. Diplomatic delegations from some of the Fund’s member countries warn that there is no room for more leniency.

Private analysts, meanwhile, warn that the growth the government promised the IMF, and which it claims every time it says it will not make adjustments, is in doubt because of the lack of dollars for imports and the problems many industries expect as early as winter because of the gas shortage.

The acceleration of inflation is causing those who hold dollars to delay their sales in the foreign exchange market as much as possible. The IMF has already warned that it will have to recalibrate its monetary and exchange rate policies, and many speculate that the BCRA will accelerate the rate hike.

Last February, exporters sold US$5.595 billion, according to the Macroview report released this week, while reported shipments were US$6.443 billion. In other words, they held back about US$848 million.

Meanwhile, the Central Bank (BCRA) accelerated payments for importers, releasing US$4.689 billion, while US$5.269 billion worth of imports were declared. Electronics companies confirm the shortage: more than one has been asked by BCRA to renegotiate payments with its suppliers. Close to the president of the BCRA, Miguel Pesce, says that in March payments were approved in the record amount of US$7.2 billion, the most since August 2011. Among companies, complaints are still as strong as they were a month ago.

At the BCRA, despite market pressure, they say they want to stick with gradualization, both in terms of the pace of devaluation (crawling peg) and in terms of rate hikes. The BCRA will again wait for core inflation figures, this time for March, before making a new rate adjustment. With the IMF, it committed not to delay the exchange rate and to bring rates into positive territory in real terms.

Some private consultants are concerned that at this pace, the BCRA will have a very difficult time maintaining the exchange rate peg in the third quarter of the year.

For multinational companies reporting overseas, the exchange rate is an issue that keeps them up at night: It is not the same to value a business in the country at the official exchange rate as at the floating rate. Any business in Argentina can be worth half as much from one day to the next.

ONCE AGAIN, IT IS NECESSARY TO GET THROUGH THE WINTER

The situation in the energy market does not seem to be improving. On Tuesday evening, the CEO of YPF, Sergio Affronti, met at the offices of the oil company in Puerto Madero with representatives of oil companies -PAE, Tecpetrol, Shell, among others- and refineries -Axion, Raízen- to try to solve the problem of diesel oil shortage, which is crucial to maintain the transportation of goods throughout the country, and especially not to hinder the heavy harvest.

He called on oil companies to sell more crude oil to YPF-which otherwise exports at an international price far higher than the US$60 per barrel paid in Argentina-in order to maintain diesel production and not have to import.

The fear that the government will impose a de facto total halt to oil exports – rather than its altruistic appeal – will drive oil companies to cooperate. The only question is for how long. Especially if the war is prolonged and world fuel prices continue to rise.

Some participants suggested that YPF should require the government to do the same by contributing to a reduction in the fuel transfer tax. The government usually shares in the profits, never in the losses…

The gas shortage problem is even more complicated. Among industrialists, no one understands how a planned energy rationing, as proposed by Minister Matías Kulfas, can prevent the closure of a plant.

The state has not yet made any projections about how much gas it will eventually be able to import to meet demand in the local market; it has only put out to tender the purchase of eight LNG vessels, although it is estimated that between 65 and 70 will be needed. In Argentina, history keeps repeating itself. Once again, the winter has to be survived.

With information from La Nacion