Sunday, March 27, 2016

US-Argentine agreements and Macri's economic policies

President Obama and Argentine President Mauricio Macri signed various agreements last week during Obama's visit to Argentina. Horacio Verbitsky reports (La transparencia del sigilo Página/12 27.03.2016) that the Fact Sheet at the White House website provides considerably more information about those agreements than Macri's government has provided its own citizens.

The Fact Sheet is in diplomatese, of course:

Since taking office in December, President Macri has quickly implemented economic reforms to begin addressing economic imbalances and deepen Argentina’s integration with the global economy. ... Reflecting significant private-sector interest in Argentina, U.S. companies announced multibillion dollar investments that will help build upon the more than $20 billion in annual United States-Argentina trade. In the coming months, six trade delegations will help U.S. and Argentine businesses identify further opportunities.
This is diplomatic blah-blah for policy changes that Macri quickly applied after taking office: drastic devaluation of the Argentina peso against the dollar, which drastically lowered general purchasing power and is still generating inflation in the 20-30% range; dropping export-import controls that were designed to promote development of key Argentine industrial sectors; ending capital controls (with minor exceptions) that open Argentina to having its dollar reserves drained and to being a target of the kind of financial speculation that precipitated the crisis of 2001; and, caving in to the demands of the US "vulture funds" to pay them an enormous premium on their investment in defaulted Argentine bonds; taking out new national debt to pay off the vulture funds.

Verbitsky refers to the article The Other Trip: Obama in Argentina Inter-American Dialogue 03/24/2016, which notes that Obama's trip to Argentina was "at least equally important for the future of US-Latin America relations, was President Obama’s trip to Argentina" as the trip to Cuba.

The unsigned IAD article explains the politics of Obama's policy highlighted on the trip to Argentina, which is to have the United States distinctly favor governments of the right against those of the democratic left:

Based on the current political trends in the hemisphere, and although no major bilateral initiatives are expected, Macri’s Argentina will likely become one of the closest partners of the US in the region.

The visit comes only months after Macri succeeded Cristina Fernández de Kirchner, who maintained what Obama himself called an “anti-US” foreign policy throughout her term, usually siding with Venezuela on regional matters. Bilateral relations were strained by her government’s attempt to negotiate with Iran over the investigation of a 1994 terrorist attack in Buenos Aires, and when her foreign minister personally confiscated the cargo of a US military cargo plane. In 2005—during the last visit of a US president to Argentina—Fernández’s husband and predecessor, Néstor Kirchner, confronted George W. Bush and harshly rejected his proposed Free Trade Area of the Americas.
Obama was also expressing strong support for Macri's neoliberal/IMF/Washington Consensus economic policies and opposition to the successful Keynesian and development-oriented policies of his immediate predecessors:

Obama praised Macri for the decisive steps he has taken in only 100 days in office to resolve the numerous macroeconomic distortions he inherited. These measures include lifting currency controls, reducing import restrictions, and—most importantly—reaching an agreement with most of the holdouts (or vulture funds, as they are known in Argentina) to end Argentina’s longstanding default. The Argentine Chamber of Deputies already approved the agreement with a significant majority, and it will likely pass the Senate in late March. Obama compared Macri’s efforts to reenter the financial system with his own success in overcoming the “Great Recession,” and said that under Macri Argentina “is reassuming its traditional leadership role in the region and around the world.”
Comparing the state of Argentina's economy when Macri took office in December to that of the US at the end of Shrub Bush's Presidency is fairly ridiculous. Macri's claims about the economy having been in crisis are "shock doctrine" justifications on his hardline neoliberal approach, not a meaningful description of economic reality.

These were also notable parts of the US-Argentine agreements:

American businessmen promised to boost investment in Argentina in the next four years by several billion dollars. ...

Obama expressed the desire of the United States to work with Argentina to develop the country’s significant deposits of shale gas and oil, one of the largest in the world. Chevron is already operating in partnership with Argentina’s state-owned YPF.
Verbitsky adds important information about those investment pledges:

Estas promesas de inversiones por no más de 4.000 millones de dólares al año son una gota en el océano que no compensa ni en forma remota la merma de la inversión pública dispuesta por el gobierno y el nuevo endeudamiento que comenzará dentro de dos semanas, con un primer saque de 12.500 millones de dólares para pagarles a los fondos buitre. Esto permite avizorar que la recesión será más profunda y duradera de lo que se preveía, porque constituye el único instrumento para atenuar la inflación que sigue en aumento y ya ronda el 5 por ciento mensual. Además, parte del dinero que pueda ingresar no se destinará a inversión productiva sino a la adquisición de empresas preexistentes, a precios de liquidación por la desvalorización del peso y la caída de la actividad.

[These promises of investment of no more than $4 billion per year are a drop in the ocean that will not even remotely compensate for the reduction in public investment ordered by the government and the new indebtedness that will begin with two weeks, with a first tranche of $12.5 billion to pay the vulture funds. This will allow us to watch a recession be much deeper and longer than the one that came before, because they {public investments} constitute the only instrument to attenuate the inflation that that will follow the augmentation {of the debt} and it already rounds to 5% per month. In addition, part of the money that can come in {with the American investments} will not be directed to productive investment but rather to the acquisition of preexisting businesses at liquidation prices due to the devaluation of the peso and the fall in {economic} activity.]

He also reports, "Miguel Angel Broda agregó que el acuerdo con los buitres no sustituye el ajuste fiscal." ("Miguel Angel Broda calculates that the agreement with the vultures will not replace the fiscal cuts.") In other words, Macri is promising that bad times due to his initial measures will be followed by significant improvements starting by the second half of 2016. Macri had argued that the unpopular capitulation to the vulture funds was necessary because without it lots more cuts in government spending will be necessary. Broda is suggesting that the cuts will go on anyway.

Broda has been one of Macri's chief economic advisers. With a PhD in Economics from the University of Chicago, he is carrying on the legacy of an earlier group of "Chicago Boys," the neoliberal American economists who eagerly pimped Herbert Hoover economics to the Latin American military dictatorships of the 1970s. He was a critic of the kirchnerista economics that successfully got Argentina past the financial disaster of 2001, which was produced by the same kind of policies Macri is now implementing. (And Obama is celebrating.) Federico Bernal (Miguel Ángel Broda: un fundamentalista con Macri INFOnews 12.07.2015 |) calls Broda an "anarco-mercadismo" ("free-market anarchist). So Broda's prediction is also a recommendation of what he would prefer to see done. And what Macri's government is very likely to do.

The IAD article concludes with these observations:

It remains to be seen if Macri’s reforms will succeed in rekindling economic growth in Argentina. Inflation remains extremely high, labor unions are expressing their opposition to some of Macri’s measures, and the president does not hold a majority in Congress. For now, moderate sectors within Peronism—especially provincial governors—are collaborating with the president. That might change if the economy deteriorates further, and if Macri’s currently high poll numbers were to fall.

Nevertheless, Buenos Aires has become one of Washington’s closest allies in its desire to improve relations with Latin America and see a new generation of leaders in the region, and will likely remain so for the foreseeable future. To consolidate this trend, Washington will likely work to include Argentina in regional discussions and boost economic opportunities, including lifting restrictions for Argentine goods. The main political challenge for Macri will be to show that this does not mean the return to neoliberal policies and the “automatic alignment” with Washington the country pursued in the 1990s, and which most Argentines still associate with the economic collapse of 2001. [my emphasis]
Raúl Dellatorre reports that three of Macri's other favorite economic advisers are already looking for a scapegoat for the projected failures of their policies to achieve the promised growth and price stability in Argentina. (¿Quién será el que le rompa el globo a Alfonso? Página/12 27.03.2016) Central bank president Federico Sturzenegger, Minster of the Interior Rogelio Frigerio and Banco Nación president Carlos Melconian are pointing the finger at Finance Minister Alfonso Prat-Gay, already notorious for the surrender agreement with the vulture funds. That's right, Prat-Gay, yer taking the fall! At least that seems to be what that unholy trinity of neoliberal economic advisers are trying to set up.

Dellatorre writes that they are criticizing:

... el manejo de la política económica, a la que empiezan a responsabilizar del alejamiento o, al menos, falta de apoyo más firme de sectores que se consideraban aliados naturales, como la city financiera o el establishment empresario. Inversiones que no llegan, inflación que no cede, dudas sobre un horizonte de recuperación antes de fin de año, un déficit fiscal creciente y que abre cada vez más interrogantes sobre la forma de financiarlo, “corridas” cambiarias, son algunos de los ingredientes del escenario que no se esperaba tener a esta altura, y cuya existencia ya son varias las voces que se la atribuyen al arrogante jefe del Palacio de Hacienda.

[... the directing of economic policy, which they are starting to blame for the distancing, or at least the lack of more firm support, by sectors they consider natural allies, such as the financial "city" or the business Establishment. Investments that don't come, inflation that is not receding, doubts about the time horizon for the recuperation {of the economy} before the end of the year, a growing fiscal deficit and the question that is raise more and more about the way to finance it, exchange "orgasms," are some of the elements of the scene that were not expected at this point, and whose existence is attributed by various voice to the arrogant boss of the Finance Ministry.]
This reminds me of a comment by Peronist leader and political theorist John William Cooke in the 1960s, in response to similar free-market fundamentalist economic policies, that said something of the effect of, they promise cold winters that always come and glorious springs that never arrive.

The criticism that Dellatore describes involves insisting that further government cuts be made. This is the neoliberal faith of privatization of public services and minimizing any public functions that don't directly benefit the wealthy. And the monetarist voodoo that is typically part of such neoliberal experiments gets tossed in there, too. Of course. As well as our old friend the Confidence Fairy, who is apparently remaining in hiding until Macri's government slashes public expenditures some more. Pat-Gay is even promising GDP growth of 10-12% annually, presumably in those marvelous springtimes neoliberal prophets are so fond of predicting. Carlos Melconian is talking about needed "structural adjustments," one of Angela Merkel favorite phrases in grinding the economies of southern European countries into the dust in pursuit of her "ordoliberal" Herbert Hoover policies.

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