Argentina’s Peronists bicker over IMF deal

JTHE DELTA OF the Paraná River, through which a large part of Argentine exports pass, is an aquatic labyrinth of crossed currents and channels that meet and then separate again. The same goes for Peronism, the broad nationalist-populist movement that has ruled the country for 25 of the 38 years since democracy was restored in 1983. Power, or its perspective, unites it. But in adversity its constituent currents often take different courses, such as a dispute this week over a draft agreement with the IMF shows.

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President Alberto Fernández’s government took two years to close in on the deal, which would refinance the $44.5 billion borrowed from the fund by his center-right predecessor, Mauricio Macri. The reluctance is partly ideological: Cristina Fernández de Kirchner, vice-president and leader of the populist leftist wing of Peronism, has made a political career blaming her country’s mostly self-inflicted problems on the IMF and “neoliberalism”. It’s also economic: in exchange for its money, the fund wants Argentina to print less money, run smaller deficits and abandon its dual exchange rate. It involves belt-tightening in the short term for medium-term gain in a country whose economy has not fully recovered from the pandemic and where four in ten people live in poverty.

The framework agreement announced on January 28 is less demanding than the fund normally requires. Mr. Fernández boasted that this does not force Argentina to carry out pension or labor reforms and will allow for increased public investment. It is an agreement “without austerity policy”, affirmed Martín Guzmán, the Minister of Economy. the IMFThe board has yet to approve the details. But the plan was quickly rejected by the Kirchneristas. On January 31, Máximo Kirchner, the son of the vice president, resigned as leader of the Peronist caucus in the lower house of Congress. He says he does not “share the strategy used and even less the results obtained” from the fund.

Mr. Kirchner is correct that the agreement is stricter than the government suggests. It demands a reduction in the budget deficit to 2.5% of GDP this year, from 3% last time, then to 1.9% in 2023. The problem for Mr Fernández is that last year’s figure was flattered by one-off items, including a now lapsed wealth tax and a temporary spike in Argentine silver prices. agricultural products and therefore in export taxes. Without changes, this year’s deficit might be 4.5% of GDP. The government must therefore reduce by approximately two points GDP spending, probably by cutting electricity and gas subsidies and letting inflation (at 51%) erode the value of pensions.

The deal also requires the Central Bank’s money printing (to cover the deficit) to rise from 3.7% GDP last year to only 1% this year, and that its international reserves increase by $5 billion. The government hopes that the agreement will allow it to raise more international money.

the IMF knows that the government of Mr. Fernández is weak and risks elections next year. The fund has admitted making mistakes with Mr. Macri’s loan. IMF the staff have long argued that a substandard deal is better than a default. “I think the IMF sees this as a bridge to a new government that has the capacity to make the reforms Argentina needs to put its house in order and for growth,” says Eduardo Levy Yeyati, Economist. For Argentina too, a low-level deal is better than none. A default would put pressure on the peso and mean more inflation and less growth. But any formal deal must be approved by Congress under a law passed last year. The Kirchneristas seem determined to vote against. The government must either depend on the opposition or avoid the vote by emergency decree.

The underlying problem is that the Peronist penchant for protectionism and inflation-funded subsidies has left Argentina with low growth and a chronic shortage of foreign currency. Mr. Fernández’s team talks about growth, but blocks it with punitive regulation and taxation. “This is a government that is a machine to destroy all business opportunities,” says Federico Sturzenegger, former head of the Central Bank. Argentina has many entrepreneurs, but many settle elsewhere.

Even if Mr. Fernández obtains his agreement, the country will simply remain inactive. Kirchnerism has only rhetoric to offer Argentines. The next election seems to be that of the opposition to lose. But steering the economy into a high-speed channel is forcing the nation to face some hard truths. Last year’s drought left Paraná dangerously shallow. Peronism seems to be in the same state.

Learn more about Bello, our columnist on Latin America:
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This article appeared in the The Americas section of the print edition under the headline “Adrift in treacherous currents”

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