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Featured image: Alberto Fernández (left), president of Argentina, delivers his State of the Nation address at the opening session of the Congress, with Vice President Cristina Fernández present on stage (right), March 2021, Buenos Aires, Argentina. Photo: Senate Press/telam/dpa.
By Horacio Verbitsky – Feb 27, 2022
The differences of opinion within the Frente de Todos regarding the agreement with the International Monetary Fund (IMF) must be reviewed with respect to the risk of neoliberalism returning to the presidency in 2023, either through a second term to which Mauricio Macri aspires or through another candidate. The problem is that this would require an arbiter to control how the criterion of truth is verified in each case, and in the ruling coalition this role is vacant.
The underlying question that exacerbates the contradictions is how to deal with the payment of the $57 billion loan contracted by former President Mauricio Macri in 2018 (of which only $44.5 billion came to be disbursed, as President-elect Alberto Fernández asked the IMF in October 2019 not to send the remaining installments because it would be equivalent to drinking wine to cure drunkenness).
Fernández and Martín Guzmán [minister of economy], among others, believe that the agreement they are still discussing with the IMF’s technical staff will allow maintaining the growth of the economy and its better distribution and, consequently, will weaken the possibility of a fourth neoliberal cycle. They claim that, for the first time in two-thirds of a century of dealings with the organization, of which Juan D. Perón refused to be a member, the IMF is not conditioning the agreement with Argentina on the implementation of structural reforms, neither in labor relations nor in the pension system, and that this will allow an increase in investment in public works, education, science and technology, and thus deny that the agreement can be defined as an adjustment.
For Vice President Cristina Fernández de Kirchner and her son Máximo Kirchner, among others, this is not guaranteed, and in fact the adjustment had started before any document was signed, given the excessive reduction of the fiscal deficit and the under-execution of the budget, to which they attribute the mediocre result in the mid-term elections, which they fear will be repeated and aggravated in next year’s presidential elections.
Structural references
On the basis that there will be no adjustment or structural reforms and the commitment that wages will not continue to fall in the condition of inflation, Fernández has even installed the project for a new presidential term in 2023. But the draft Memorandum of Economic and Financial Policy that was circulated two weeks ago mentions no less than 19 times what the text calls “structural reference.” In the logic of the IMF this is unobjectionable, because it is part of the instrumentation in the Extended Facilities agreements, such as the one requested by the Argentine government. Here is a summary of the sectors for which “structural reference” was mentioned:
RELATED CONTENT: Argentina’s Cristina Fernández de Kirchner Leads Polls for 2023
Many of these can be considered to support measures that the government wishes to adopt and the dominant sectors are trying to resist, such as the refusal of the Rural Society to pay withholding taxes, despite the growth of the harvest and the increase in prices, or the real estate revaluation which the governors are reluctant to accept. The president clarified that the special regimes under review would be those of diplomats and magistrates, but the conservative think tank CIPPEC states that this definition also covers teachers, scientific researchers, workers of Luz y Fuerza [national energy sector], workers in “arduous or risky” tasks, public employees of the provinces, personnel of the Armed and Security Forces, and non-contributory pensions, among others. There would be 170 regimes, with 40% of the current beneficiaries and 55% of the total expenditure. It is obvious that in the successive revisions, the IMF will focus on this and that it is only a tactical decision to leave it for later.
However, there are other constraints arising from other issues in the draft. The macroeconomic program foresees that the GDP will grow from 3.5% to 4.5% this year and would stabilize at around 1.75% to 2.25% in the following years. This would deepen the existing social and structural inequalities. In addition, the Memorandum proposes to ensure that the public sector wage bill “will grow consistently with the growth of the economy”. This means that what was lost in [Macri’s] black term would not be recovered. If, due to external factors, national public sector revenues are higher than what is programmed, the government commits itself to “reduce the fiscal deficit accordingly.”
In other words, paying more instead of more growth and better distribution.
For the first time
Beyond these differences, this will be the first time that Article 75 of the Constitution will be complied with. Paragraph 7 of this Article states that one of the powers of the Congress is to “arrange for the payment of the internal and external debt of the Nation.” The anti-kirchnerista obsession of an opposition group made the Coalición Cívica Libertadora propose that, once again, the issue be left in the hands of the Executive, without the intervention of the Parliament. However, President Fernández rejected it, because he is sure that he will obtain the necessary number of votes in both chambers of the parliament. He takes it for granted that the [opposition] Juntos por el Cambio MPs in both houses of parliament will approve whatever is presented to them, with which the debt agreement would be just a few votes short of complying with the Public Debt Sustainability law, approved on February 11, 2021. The president himself is calling leaders of La Cámpora [kirchnerista youth organisation], asking them not to support the position of Máximo Kirchner who, for his part, is not proselytizing for a vote against the agreement or for abstention.
Regarding the vice president’s position, there have been a wide range of opposing versions that range from those who claim that Máximo expressed his mother’s objections [to the agreement] to those who attribute to her a different position from that of Deputy Máximo, who even told the president that he did not agree with his mother when she had selected him [Alberto] as candidate for the presidency.
The issue is one of the differences between the president and the vice president. The president laments that he has been left alone at a crucial moment. The vice president advises him not to victimize himself and reminds him that when she offered him the candidacy, he reserved the authority to appoint each and every one of the members of the economic cabinet. Alberto points out that they always knew that the main problem was the monstrous IMF debt contracted by Macri. Cristina believes that for this very reason it should have been approached differently. The president affirms that the deal could have been closed in March 2021, but that it was suggested to him (he does not say by whom) that it would be better to wait until the [mid-term] elections. She is infuriated by this argument. If we listen to the description of those close to the two, in a face-to-face dialogue both could say almost in unison: “You knew what I am like.”
At this point, the most difficult thing is the transition from what should have been to the universe of what is there already.
United we lose
In late February, Deputy Victoria Tolosa Paz tried to obtain an explicit statement from the Justicialist Party of the province of Buenos Aires in support of the possible agreement. Máximo Kirchner himself responded to her: he said that he had no objection toward putting the proposal to a vote. “Better not,” said the Minister of Public Works of Argentina, Gabriel Katopodis.
In La Plata, Alberto Fernández called for unity, which he associated with strength, and warned against division, which is weakness. He did not choose any ecumenical act for that messaging: it was the re-launching of a sector of the youth organization Juventud Universitaria Peronista, sponsored by Tolosa Paz, and which opposes La Cámpora.
There are also different explanations about the new postponement of the announcement, which would not take place before but after the opening of the ordinary sessions of the Congress:
These are in no way mutually exclusive.
RELATED CONTENT: Argentina’s Cristina Fernández de Kirchner Leads Polls for 2023
The beginning of armed hostilities between Russia and Ukraine adds complexity to an already difficult situation. On the one hand, it accentuates the geopolitical side of the negotiation with the IMF, to which Guzmán referred before the governors on January 5. As soon as the first bombs went off, soybean and oil prices rose. With oil seed prices set to reach $650 a ton, fiscal revenues will increase substantially, but oil at over $100 a barrel will swell the import bill and will force an increase in subsidies or tariffs, instead of reducing them as the IMF demands. It will also lead to a global increase in inflation, which will be felt in Argentina too. The draft Memorandum contemplates that in the event of a worsening of the global economic situation, policies would be reversed “in consultation with the IMF staff.” Alberto has complained to a media owner who spoke of co-governance, but the text leaves no room for doubt.
At this point, the government is being increasingly questioned for the delay in the construction of the gas pipeline that will allow increasing the production of the Vaca Muerta oilfield. It could be much higher if it were not for the full capacity of the pipelines that carry gas to the north, either to export or to substitute more expensive imports from Bolivia which, on the other hand, also has supply difficulties and must choose between sending its excess production to Argentina or to Brazil.
This dilemma is more than six decades old. With the delay in the decision, despite the fact that the tax on large fortunes has provided a significant part of the financing of the pipeline, it will not be ready this winter. Maybe next winter.
Neither too much nor too little
Two individuals very close to President Alberto Fernández give opposing versions about the state of his relations with Minister of Economy Martín Guzmán:
Neither so much nor so little. In fact, the president scolded the minister who, on January 5, before the governors, had specified that what was being negotiated was a refinancing (as Guzmán explained that day, more money from the IMF to pay back the IMF) and not a rescheduling of the original maturities.
Below is a reconstruction of the dialogue the two had at that time, with inputs from different sources that heard the versions of each one:
AF: You never said it was a refinancing.
MG: But it is obvious, it is taken for granted. The IMF does not restructure its loans. It refinances them.
AF: Obvious to you. I am a lawyer and I just found out about it.
MG: What matters is the net balance. The installments that we may not be able to pay will start to be due in the next presidential term.
When questioned by [news outlet] El Cohete a la Luna, sources from the Ministry of Economy said something similar and promised to specify when Guzmán had already stated that this was a new loan, as the minister claims. Two weeks later they are yet to do so. The first to make that clarification was the Argentine representative on the IMF board, Sergio Chodos, during a radio interview in November. Not the first one, but the only one, claim kirchnerista critics.
Another irritating factor was Chodos’ visit to the Permanent Bicameral Commission for the Follow-up and Control of the Contracting and Payment Management of the Foreign Debt of the Nation. According to Berco, Chodos “admitted that he never openly proposed to the IMF staff a term longer than 10 years for the refinancing, as CFK demanded and as proposed by the Senate itself.” When contacted for this article, the president said, “I don’t know what Chodos did, but I personally asked Kristalina Georgieva [for a longer term].” In any case, the answer was negative.
This was not the only clarification from the presidency. In a conference at the Council of Americas, Ilan Goldfajn, the new IMF person in charge for South America (which is called “Western Hemisphere” there) said that the agreement with Argentina was almost reached, highlighted the importance of structural reforms, and added: informal workers face a huge lack of protection due to the absence of laws to assist them and, therefore, it is necessary to “reduce the cost of hiring and firing.” Or “to eat and to shit,” as said the Techint manager whom Macri appointed Secretary of Employment. Goldfajn’s friendship with his friend from student life Federico Sturzenegger and with the co-editor of one of his books, Eduardo Levy Yeyati, is not a reassuring fact.
“There will be no law in that sense,” Alberto Fernández rejected those claims.
It is not easy to determine whether Fernández is one thing and Guzmán is another. And it is also debated why the minister only mentioned refinancing on January 5. The most extreme versions go so far as to consider him as the fifth column of the IMF. However, that is not what Cristina thinks.
Guzmán believes that international conditions changed after the withdrawal of US troops from Afghanistan nine months ago. According to Cristina, conditions changed earlier, as soon as Biden had to negotiate with a Republican sector and two reluctant Democrat senators to support his plans for investment in infrastructure and social assistance. In any case, the Democrat administration ceded to the influential Wall Street investors the line that the IMF would follow. This included the offensive against the current IMF President Georgieva, for allegedly favoring China in an ease-of-business index for countries, and the minister had neither the lucidity nor the courage to denounce it at the time it was happening.
If there is no other way
Nevertheless, the Executive Branch ended up accepting the fait accompli presented by Guzmán, and prepared an instruction to defend the agreement in the face of criticisms from within and outside. It argues that there was no other way than refinancing [the debt] and that this does not imply contracting one more dollar of debt (although nothing is said about the interest that will be added to the account, 4.5% per year because it is an “exceptional access”). Even with the surcharge, they are below market rates, claims the Guzmán camp.
The official roadmap further adds:
• While the loan taken by Macri fueled the flight of companies close to his government, the one that is being negotiated now would increase the reserves of the Central Bank (a point that the February 12 draft only mentions in a generic way and/or in reference to the increase of exports).
• Macri had promised a quick repayment (almost $40 billion between one year and the next), impossible to fulfill. The ongoing negotiation would defer those payments, the first for September 2026 and the last for mid-2034, with four years of grace period for growth and accumulation of reserves.
• While Macri reduced the fiscal deficit by eliminating nine ministries (including Health, Labor, and Science), the current government would increase spending in those areas and in public works.
• The previous government did not reduce inflation despite the drastic adjustment it carried out. The current government will reduce the deficit gradually, while the economy grows at 4% per year (this year, yes, but the Memorandum contemplates a further drop to a little more than half, from 1.75 to 2.25 % in the following years).
The sacrifices to which Argentina commits itself are precisely quantified in the Memorandum:
• Fiscal deficit over GDP at 2.5% for this year, 1.9% for next year, 0.5% for 2024 and zero for 2025. Even before signing, the IMF already objected to the official calculations and claimed that with the tariff increases under consideration the deficit will be higher than 2.5%.
• Sharp reduction of financing [to the Treasury] by BCRA, which was 3.7% of GDP in 2021 and should be hardly 1% for this year.
• This adds up to an adjustment in public accounts of 3.4% of GDP compared to last year.
On the other hand, the advantages of the agreement are referred to in a vague or generic way.
The IMF’s policies for Argentina and their effects bear a disturbing resemblance to the sanctions against the Russian Federation. According to the President of the European Commission, Ursula von der Leyen, “The first pillar will be financial. It aims to end Russia’s growth, increase its financing costs, raise inflation, and intensify capital outflows.” And Macri did not attack any neighboring country.
The legal framework
There is also no precision about the legal framework of the agreement. In his presentation on January 5, Guzmán explained for the first time all the steps to be taken. The Memorandum of Economic and Financial Policy is only one of the required documents. The others are the Technical Memorandum of Understanding, which is where the negotiation seems to be stuck, and finally the Letter of Intent.
What was always known and what both Guzmán and Chodos said many times, is that “in the IMF’s shelf there are only two programs on offer: the Stand By, which lasts up to three years, to address short-term balance of payments problems, and the Extended Facilities Agreement, for 10 years, for cases of serious imbalances due to structural problems, which the IMF helps to solve.” But in this case, the $40 billion that Argentina still owes to the IMF for Macri’s loan (of which $4.5 billion have already been paid) will be paid with new contributions from the IMF itself, in 10 equal quarterly installments until July 2024.
Only after this new Stand By of exceptional access (because it well exceeds the maximum that would correspond to the country according to its SDR capital in the Fund) would the Extended Facilities Agreement begin. The first four years are grace years and the payments go from the fifth to the tenth year, that is from 2028 to 2034.
This implies that Argentina will suffer quarterly reviews by the IMF for the next 12 years. As Guzmán explained to the governors, the quarterly reviews include a retrospective aspect, about what has already been done, and a prospective aspect, about the possibility of fulfilling the commitments in the future.
Guzmán is not unaware that there are too many opportunities to give Argentina a thumbs down.
Featured image: Alberto Fernández (left), president of Argentina, delivers his State of the Nation address at the opening session of the Congress, with Vice President Cristina Fernández present on stage (right), March 2021, Buenos Aires, Argentina. Photo: Senate Press/telam/dpa.
Translation: Orinoco Tribune
OT/SC/SL/JRE
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