The Storm Clouds Are Gathering Over Argentina

The storm clouds are gathering over Argentina again. Rumors are swirling. People are nervous, asking, “What is going to happen with the country?” Middle class Argentines are wondering if they should withdraw their cash from banks. “I hear they’re going to freeze deposits again,” they say. “I hear they’re going to split the exchange rate in two – one rate for exporters, another for the rest of us. What do you think is going to happen?”

Unfortunately, after 10 years of writing about Argentine politics, I have no idea. And neither do any of the economists, politicians or businessmen I talk with. Many are struggling to get even the smallest bit of information about what is to come. The uncertainty is both pervasive and profound. Even the keenest observers are grasping at straws, admitting they have no idea what to expect. Welcome to Argentina.

Corporate executives are holding emergency meetings with economists and other paid advisors. CEOs who are normally confident about their ability to manage crises are calling colleagues and competitors to see if anyone knows what is going to happen. People with connections in the government – that is to say, connections to Nestor Kirchner, Julio De Vido or Cristina Fernández – are trying to find out what these three are thinking. Inflation is rising, perhaps by 30% annually, though nobody knows for sure because the government has decapitated the national statistics institute. The higher prices have pushed hundreds of thousands of people below the poverty level, economists say. But official data do not reflect such trouble because the government conveniently stopped measuring poverty last year. Banks are raising interest rates and curtailing loans. Another devastating farm protest looms.

Mid-level managers are clamoring for higher salaries (for themselves and their employees) while postponing decisions about hiring new staff. On the street, people are returning to exchange houses and buying dollars, as they have so many times in years past. But few people know if any of this is necessary or wise. Nobody knows if there will even be another crisis. And that is the problem, you cannot be sure. After all, this is a country where boom and bust cycles tend to radically alter the political and financial landscape every decade or so. Argentines have come to expect this. History has taught them to take it as a given. And when expectations become so ingrained in a nation’s collective conscious, they tend to become self-fulfilling prophecies.

In an article published Saturday in the newspaper Perfil, political analyst Graciela Römer said this about the situation:

“Opinion polls show the government is losing popularity. Business and academic travelers who visit the country are surprised to see how the Argentine mood has changed. The key question they ask is, ‘What led to the decline in optimism that was so prevalent just a year ago?’

Are we entering the negative phase of one of those cycles … of disappointment that seem to define our national temperament? Is there something more profound than the frustration over the government’s inability to contain rising prices, the continuing presence of crime, or the failure to resolve the agriculture conflict? Is it perhaps the “double presidency,” or maybe the questioning of former president Kirchner and his role as the ‘economy minister behind the scenes?’ I believe it is all of these things and much more. Together, these things have produced a critical mass that overwhelmed peoples’ ability to tolerate the frustration they have felt when thinking about the future.”

If enough people believe a crisis is approaching, and enough withdraw their money from banks and stop spending, the outcome is a foregone conclusion: a genuine crisis. Nobody is predicting the kind of jaw-dropping meltdown that walloped the country in 2002. But a lesser crisis is plausible enough to stir fears and feed the rumor mills. Economists say Argentina’s “fundamentals are solid.” The economy is growing rapidly. Unemployment is low, the government has a fiscal surplus, the central bank has $50 billion in reserves, inflation is high but not wildly out of control, and people are still shopping, dining out and dancing at nightclubs. Tourists are arriving in records numbers.

But one key indicator often goes unmentioned: consumer confidence. The farm strike left the government deeply wounded. It slashed confidence in the president’s ability to solve problems. The conflict, and her tone-deaf, hard-headed and ineffectual approach to dealing with it, made her look incapable of dealing practically with what was, in some ways, a simple revolt against tax policies. Had she made a few minor concessions, she could have avoided a month-long conflict that cost Argentina hundreds of millions of dollars in lost trade and industrial output. She also could have demonstrated that she is capable of governing prudently.

Evidently, that was too much to ask. Cristina attacked the farmers, calling them enemies of the state, and refused to negotiate the one policy that led them to protest in the first place. Her refusal to sit down and negotiate in good faith, as well as her effort to marginalize farmers socially and politically, guaranteed that they would harden their position. For almost a month since the protests ended, she unnecessarily let the nation wonder if farmers would return to the roads and protest again. Meanwhile, she allowed one of her key officials, Commerce Secretary Guillermo Moreno, to threaten farmers and their children. “I know where you live,” Moreno told one agriculture leader: “I know where your children go to school.” This is not statesmanship. It is behavior one would expect from an Italian Mafioso.

Since Cristina won the election, observers have wondered what kind of leader she would be. She said little about how she would govern. She made no policy announcements, leaving analysts little alternative but to read tea leaves when trying to predict her policy prescriptions. Aids said she would focus on international relations and improve Argentina’s image in the world. She would start, they said, by repairing relations with the U.S.

But just days after taking power, she backtracked on those plans and launched an all-out verbal offensive against the U.S. After discovering that a U.S. prosecutor was investigating a Venezuelan who carried $800,000 into Argentina in a suitcase, Cristina said the U.S. was engaging in “trash” intelligence operations against her and her ally, Venezuelan President Hugo Chávez. The outburst served no constructive purpose. But it scarred relations with the U.S. while raising questions about her leadership skills. It also raised questions about the nature of her ties to Chávez.

The “suitcase scandal” eventually blew over, but not before damaging Cristina’s image as a leader who, many hoped, would govern pragmatically and less impetuously than her husband. Over the past month more people have begun questioning her leadership. They also have begun questioning her influence on policy. Is it Cristina or her husband who really calls the shots?

“More is said about Néstor Kirchner than about Cristina Kirchner,” political columnist Joaquín Morales Solá wrote in Sunday’s La Nación. “The president (Cristina) was known in her day for being a strong woman with her own ideas. But that was another world.” Santa Fe Province Governor Hermes Binner recently said this about the matter: “We need for there to be just one president.”

Cristina’s favorability rating has dropped to 41% from 54% in 30 days, according to a poll by Römer. People are becoming impatient with her lack of transparency. As long as things were going well, many people felt little need to question the government. But since the farm strike, and the ongoing failure to deal with inflation, more people are questioning the president’s plans. Does Cristina believe inflation is a problem? If so, what should be done about it? What does she believe is the proper role of the state? Does the economy require more state intervention? Does Cristina prefer the policies being pursued in Bolivia and Venezuela or those in Brazil and Chile?

Cristina has said nothing about any of this, at least not publicly. She has continued to pretend that inflation does not exist and defended the government’s thoroughly discredited inflation data. Meanwhile, inflation recently has surpassed crime to become the top concern among Argentines. And just as Argentines have become more concerned about inflation, they have become more concerned about the government’s failure to address it.

Concern about the future is affecting the way people think about their personal finances and the way companies think about their budgets. The following internal memo, written by a local consultant, was sent as a notice to clients on Wednesday:

Yesterday afternoon there were major rumors circulating around the city. These included rumors asserting that there was or would be:

• A small run on banks (the withdrawal of deposits and the decision to not renew fixed-term deposits)
• A possible (forced) banking holiday to stanch the flow of money out of banks
• The resignation of Cabinet Chief Alberto Fernandez
• The naming of a new presidential cabinet on May 25. The launching, on the same day, of a new economic plan, which includes anti-inflation measures
• The return of the parallel or dual exchange rate, where exporters receive one rate and everyone else receives another.

What is troublesome is that all of these rumors are plausible. Increasingly, people fear that the country is teetering on the edge of a political precipice. This fear alone, if it became pervasive enough, could push the country into genuine trouble. For now, much of the concern is hidden from view. But attitudes seem to be changing quickly. Before the farm strike, complaints about the government were limited to the Kirchners’ insular nature, their combative style, their attacks on opposition parties and the media, their relationship with Venezuelan President Hugo Chávez and, of course, inflation.

Journalists voiced concern about the government’s disdain for the press. Neither Cristina nor her husband has held a single press conference since taking power in 2003. Moreover, both have verbally attacked journalists and media companies, saying they are anti-democratic. But while this frustrated journalists and worried some analysts, it was never an important issue for most voters. It never had a major impact on economic growth.

That is beginning to change. The government’s hermetic approach to communication is beginning to take a toll on the economy. A purchasing manager at a multinational company told The Argentine Post last week that he postponed buying a new building because of concern about the farm conflict and the lack of information about the government’s economic plans. The CEO of one of Argentina’s largest companies said, “This situation is unsustainable. The exchange rate is going to be 10-to-1 within a year or two. They will have to devalue the currency again.”

The mere fact that businessmen are worried indicates that things are not as rosy as they were even two months ago. The gloom and doom rumors are back. Rumors die only when they are refuted or shown to be implausible. Rumors thrive when they are plausible and left unaddressed. A person close to Cristina told The Argentine Post that she and her husband read the newspapers on a daily basis. One cannot but wonder if this is actually true. After all, you would think that if the president were aware of all the negative publicity she is getting, she it would take action to address it.

Perhaps she will. It is not too late and Argentina is not doomed to repeat the mistakes of its past. Cristina may yet prove to be a wise and skillful states-person. But for now, there is reason to be skeptical. Nobody can predict the future (futurología, as they say). But that does not leave us entirely in the dark. As psychologists like to say: The best predictor of future behavior past behavior. For those unhappy about the past, however, this may not be much consolation.

Popularity: 1% [?]