Mauricio Macri Needs to Hold the Line in Argentina: Don’t Become another Kirchner
Mauricio Macri needs to steer Argentina towards fiscal discipline like never before.
During the disastrous tenure of former President Cristina Kirchner, she cobbled together an economic team intent upon denying basic economic truths, and even engaged in outright deceit with regard to the reporting of financial statistics, even criminalizing the reporting of unapproved inflation statistics, and refusing to report the real ones, for fear of spooking international markets.
Kirchner, of course, presided over a cesspool of corruption and ransacked the nation with her merry band of loyal socialist thugs, many of whom are now in prison or awaiting trial on numerous corruption charges. She herself, as well as her children, are also facing a slew of well-deserved criminal prosecutions. Nonetheless, she remains wildly popular with her ragtag band of working class (and non-working) supporters, eager to feed at the government trough.
It would take a crisis of biblical proportions to put such a figure in the Casa Rosada in the first place, and the Argentine financial crisis of 2001-2002 was just that. Fernando de la Rua, then president, resigned and was forced to flee the capital in a helicopter, while the country cycled through four presidents in a matter of days. It is often regarded to be the worst financial crisis in modern history. Simply put, it leveled the country. Bands of looters and thieves roamed the streets, ransacking everything they could.
But how did Argentina get to this point? Simply put…decades of financial irresponsibility, aided and abetted by criminally negligent political and economic leadership, which, rather than be willing to stand up to the various interest groups intent upon destroying the country, time after time gave in to their ludicrous demands.
Argentina did not have enough money. It did, however, want to spend lavishly. So what did it do? It borrowed heavily from foreign banks, governments, and institutions, and it printed more money. Rather than get its financial house in order, collect more in taxes, and reign in spending, it took measures to ensure its economic collapse.
Enter Cristina Kirchner and her repeated comical discourses railing against “neoliberalismo”…while spending borrowed money to lavish on her low-income supporters.
While Argentina had always been a textbook example of what not to do with a national economy, Cristina Kirchner and cronies took the worst economic theories, and injected them with steroids, making it a wasteland for free enterprise and entrepreneurship.
Max Chafkin, writing in Inc, notes that “although Argentina talks and walks like a European country, its style of doing business is distinctly Third World. The country ranks 115th on the World Bank’s Doing Business index and 138th on the Heritage Foundation’s Index of Economic Freedom, thanks to a tangle of taxes, tax credits, subsidies, prohibitions, exemptions, and delays. These rules change constantly, aren’t enforced uniformly, and are forever subject to bending or breaking if a bribe is paid.”
So under Kirchnerismo, the government, in its all-knowing all-seeing all-feeling omnipotence, was responsible for strangling the free market with regulations and taxation…except that it wasn’t even capable of collecting the onerous tax burden it itself imposed, because corruption on all levels, in both the public and private sector, was rampant.
In 2015, the Argentine people had had enough and elected Mauricio Macri, a business-friendly center-right candidate, who promised a distinct break with the Cristina Kirchner style of doing things. Now, he is facing the most serious threat to his first term, with rising inflation, currently estimated at 25%, and an Argentine peso that has lost 20% to 30% of its value in recent months, now trading at 22 to the dollar.
The Argentine economy is suffering from the rise of interest rates in the US, and to counter inflation and a decline in the peso, has raised interest rates heavily in recent months. The central bank rate now stands at 40%. Macri is now seeking a USD $30 billion line of credit from the IMF to bolster the nation’s finances.
The IMF leaves a bad taste in the mouth of many Argentines, but this may be his best option at this point. And without question or doubt, Macri must stand his ground, and not give in to the predictable chorus of Marxist opposition that is going to kick and scream over so-called “austerity.”
Yes, austerity is not a popular word. But spending more money than you have, and collapsing the economy once a decade is hardly popular either.
The IMF will insist on prudent austerity measures, and Macri needs to be able to cobble together a coalition that will back him. Fundamentally, Argentina needs to vastly improve its tax collection, and spend less money. That will hold inflation in check and bolster the Argentine peso. There is no other way.
Despite what all the left-wing “caudillos” of the world have promised, their plans have never worked, and they will never work. Argentine will not regain its financial footing by borrowing money, or printing more money, and then “spending” its way into prosperity.
There will be domestic fallout. The Phillips Curve demonstrates that there is an inverse relationship between unemployment and inflation; this economic truth, was of course ignored by the Kirchner administration, always at the ready to make concessions to Argentina’s bloated public sector unions.
Macri has to put the overall health and vitality of the Argentine economy ahead of his own personal ambitions. Austerity measures are tough but necessary.