The esoteric world of statistics in Argentina is a hot topic. At INDEC, the national statistics and censuses bureau, tales abound of guns and bodyguards; photocopiers being used to prepare early data for the commerce ministry and manipulated data.
The stories, told by two INDEC workers (and confirmed by other sources in Argentina) who said they had been working there for more than 30 years and asked not to be quoted, sounded like something out of a 19th-century Latin American novel mixed with an econometric treatise.
They were both demonstrating, along with many colleagues, in front of the bureau’s headquarters on Julio Roca Avenue. That April 10 strike was the culmination of sporadic worker unrest over the past few months on the back of the government’s decision earlier in the year to interfere with INDEC, one of Argentina’s few respected institutions, by inserting a few of its own appointees.
Data confusion
The strategy backfired spectacularly, with arcane data becoming a subject matter in shops and cafes. For instance, a 3.6% increase in the March basic basket of goods was announced and then, a few days later, was radically revised to a decrease of 0.2%, a cause of much eyebrow-raising.
The furore is all the more surprising given Argentina’s robust economic performance. Argentina has been defying the pundits for the past few years. Following 40% growth over the past four years on the back of a commodity boom, devaluation, negative real interest rates, non-payment of debts and soft Venezuelan financing, the question is whether this steady path – remarkable for a country that perennially lurched from boom to crisis – can continue. Growth this year is forecast at 7.7%.
As long as high prices for commodities persist, at least one part of the equation works.
More than 50% of Argentine exports are agricultural, a state of affairs that harks back to the turn and the beginning of the 20th century. Soya bean production has also taken off. “We are going back to being the granary of the world, because Asia needs food,” says Juan Bosch, managing director of Compass Group, an asset management company.
The government has been benefiting hugely from the rise in international food prices: it imposed a whopping 27.5% export tax on soya – yet, even so, farmers are making money. It also has a managed float, keeping the currency at about 3.10 to the dollar.
(Another 15% of the country’s exports are related to energy products, which have also seen major price increases.)
Competitive agriculture
But home-grown factors play a role. The historic and continuing lack of subsidies for farmers has made them agile, says Ali Henderson, an Anglo-Argentine landowner whose family have been farming in Argentina for 140 years. He is reinvesting money in wheat and meat production.
Meanwhile, the Argentine inventiveness and flexibility, borne out of many years of being victimised by a start-stall-reverse economy, is also present in the expansion of consumer spending. Credit has been growing at 40% a year, while internal consumption is 77% of gross domestic product (GDP).
“We are seeing huge growth here,” says Charles Lechere, the representative of luxury goods maker LVMH, at a dinner party in the wealthy, Parisian-style Recoleta neighbourhood, on the same night that competitor Ferragamo hosted the gala opening of its first boutique in Buenos Aires. But large amounts of money are not needed to buy status goods. A bottle of foreign perfume, for instance, can be paid for in 12 instalments.
Spending is also boosted by visitors. Earlier that night in the same neighbourhood, a shop assistant at Rossi & Caruso, a plush leather and clothing shop, gestures at the three pairs of olive green corduroys left on the shelf. “We had many more pairs in different colours before the long Easter weekend,” he says, alluding to the foreigners who are flooding into Argentina to buy goods in shops like his, plus property both in Buenos Aires and in gated communities located within a couple of hours from the city.
The boom also relies on a distrust of Argentine-based banks on the back of the freezing of accounts and forced conversion of dollar accounts into pesos in 2001-02. Consumers are wary of depositing much of their funds in the banks and prefer spending them.
On another evening in Recoleta, the local head of an international auction house gives a dinner for about 50 people. The glamourous crowd, many on their second marriages and all fluent in English, includes representatives of every service the Argentine elite needs, or so a tongue-in-cheek observer would argue: two psychiatrists, a plastic surgeon and a private banker from a French bank.
The question is whether this elite (and the middle classes more generally) are continuing to funnel money out of the country – a long-standing Argentine tradition following a crisis-ridden history – and the answer, surprisingly, is not entirely. Many of them are, if not repatriating the whole of the estimated $100bn-plus held abroad by Argentines, at least re-investing their locally produced profits in local businesses and assets. Part of the reason is the lack of yield globally. But just as important is the vertiginous progress of their country, which bounced back from the 2001-02 economic crisis, which itself followed years of stagnation.
Political stability has been a crucial factor. But forthcoming presidential elections in October have seen Néstor Kirchner, the former governor of the desolate, oil-rich state of Santa Cruz whose obsession with a fiscal surplus has provided an orthodox back-up to unorthodox policies over the past five years, loosen the purse strings. The fiscal surplus looks like coming in at about 2.9% of GDP this year, a healthy figure but down from almost 6% in 2004.
However, as inflation rises and corruption allegations surface, Mr Kirchner’s authoritarian government continues chipping away at voices opposed to his regime.
The crackdown seems unnecessary when polls show Mr Kirchner due to be re-elected with a whopping majority in elections on October 28 on the back of high growth and relative stability.
In Argentina, however, things are not that straightforward.
“Politics here is a succession of the unexpected,” says Rosendo Fraga, a political analyst. He is the only Argentine commentator willing to go on the record about the intimidation he suffered on the back of his political criticism of the government – even well-known economists will only talk off the record about late-night ministerial calls or unwarranted tax inspections.
Mr Fraga’s commentating slots on Canal 11, a channel with high ratings owned by Spanish company Telefónica, which owns the local telephone company, were cancelled following a visit by Mr Kirchner to Spain, where he saw the head of the global telecommunications company and mentioned his dislike of the critical remarks made on the channel, claims Mr Fraga. He also claims that his slots had already been cut from three to two on the back of a call by minister for planning, public investment and services, Julio de Vido, to the local head of Telefónica. Telefónica declined to comment, as did the Argentine government.
Conflict avoidance
It is difficult to say whether this regime is paranoid or is clear-sighted about the possible challenges to its hegemony, for anything that incites street-level opposition in this country can bring down a government.
On April 11, the front page of the Buenos Aires Herald, an English-language newspaper founded in 1876, ran two main stories: ‘Legislators call for Sobisch’s impeachment’ and ‘Teamster [truckers] strike on hold?’. These encapsulate the public order issues confronting Mr Kirchner.
A salary-related teacher demonstration in Neuquén province led, through police incompetence, to the death of a 40-year old chemistry teacher. On the back of that incident, demonstrators and legislators called for the resignation of local governor Jorge Sobisch. In Argentina, a single death can have colossal repercussions.
Similarly, a few days before Christmas in 2001, president Fernando de la Rúa was helicoptered away from a terrace of the Casa Rosada, the presidential palace, on the back of a violent repression of street protests.
That is an image Mr Kirchner will not easily forget.
Muted opposition
As a result, the government dare not oppose public demonstrations of any sort. Thus the lorry drivers’ strike saw trucks and demonstrators cause chaos in central Buenos Aires traffic, a daily occurrence on the back of numerous protests. Meanwhile, the ongoing dispute against the building of a paper mill across the Río de la Plata in Uruguay has seen most of the frontier bridges cut off, causing major harm to trade and relations between the two Southern Common Market (Mercosur) countries.
So it is perhaps unsurprising that the government’s fight against inflation has become politicised. It first instituted a series of price controls in 2006, which Eduardo Curia, an academic and adviser to Mr De Vido, says cannot be described in that way. “They are not bilateral freezes. They are accords,” he says, speaking at his informal office, a table in Buenos Aires’ Four Seasons Hotel lounge. But his insistence that they happen on the back of voluntary negotiations rather than government diktat is disputed by industrialists, agriculturalists and economists.
Controlling the price of staples like bread is, however, awkward as salaries and other costs rise. Thus, in April bakers were negotiating with the government to obtain a moratorium on taxes, soft credits from banks, as well as a subsidy. In exchange, they promised to continue selling bread at a loss, a clear example of the distortions being created in the economy.
There has also been a five-year freeze on utility and public transport prices for individuals, and a three-year agreement on petrol prices.
But despite these actions, inflation appears to be accelerating as government spending increases. The International Monetary Fund estimates inflation will top 10% this year and near 13% in 2008. The government has so far kept it in single digits – officially. Keeping it under control is crucial for the administration as there is $54.3bn of outstanding inflation-linked debt and it needs to allow workers to continue benefiting from an increase in their real wages to avoid too many irate street demonstrations with incalculable consequences.
Mr Kirchner’s administration stated it wants to keep wage agreement increases in this heavily unionised country at between 14% and 17% this year. Telephone operators recently demanded 25% as the credibility of official statistics waned. Those sort of wage demands led the government recently to backtrack on some of its INDEC appointments – although the damage may already be done.
That move gave hope to those who theorise that Mr Kirchner, an able political operator who has never held a cabinet meeting since assuming the presidency, is set to confront some of the distortions in the economy such as price controls. Another indication of the changed climate, they argue, was recently allowing a retroactive 28% tariff hike for commercial and industrial gas users.
When asked how to exit the distorting, expensive price controls, governor Martín Redrado of Argentina’s central bank, the only official to agree to speak to The Banker, answered: “How do you get out of price controls? Ask the minister of economy. I’m the central bank.”
In order to keep the Argentine peso stable at 3.10 to the dollar, the central bank has been selling pesos and now sits on record foreign exchange reserves of about $38bn. Some of that could perhaps be used internally, say economists, or to pay off the remaining hold-outs of the country’s sovereign debt who did not subscribe to its debt write-off, although that is not a priority for this government as yield-hungry investors buy Argentine paper.
In May, it sold $750m of its 10-year dollar-denominated Bonan bond, while paying a yield of 8.44%. It is looking to issue a total of $2.5bn this year.
Evasion tactics
What happens after the October elections is a topic of much discussion. There are those who believe Mr Kirchner will surround himself with new, more internationally minded advisers. The current ones are “unpresentable,” says a technocrat with a former regime. Perhaps that is why they refused to see The Banker – although, more likely, they believe that little is accomplished by giving interviews to a sceptical international press. There has been a dearth of ministerial interviews in the foreign press since this government came to power in 2003, while Mr Kirchner has held no press conferences in four years.
Any adviser will need to figure out how to keep growth going – without even considering the possibility of any slowdown in world growth. The Argentine economy has ridden high on the back of spare capacity arising from the many foreign and local companies that invested in Argentina before the crisis. That is running out.
Investment in the energy sector, for instance, has decelerated sharply. In the past couple of years, Argentina has broken contracts for exports to Chile and failed to satisfy the demand of local industry. Foreign companies are wary of a government that will not allow them to increase prices and also appears intent on moving assets into the hands of local Argentine businessmen. Electricity distributor Edenor, for instance, is now controlled by Argentine Grupo Dolphin, having been sold by French company EDF.
Currently, gross investment in Argentina as a percentage of GDP is 23% – but that is largely dominated by construction. Gross investment in China as a percentage of GDP is double that number, therefore growth at close to Chinese rates appears unsustainable in Argentina, say economists.
“You don’t see anything that can keep the economy growing at 8% – we are not China – so the economy could become low-growth,” says Federico Thomsen, an independent economic adviser to foreign companies. “But that is politically unsustainable. Argentina does not do boring slowdowns.”
“If it has to adopt unpopular measures, the next government might not last its four-year term,” he adds.
Mr Kirchner’s government post elections will have its work cut out. Dismantling price controls, unfreezing tariffs and re-establishing cordial relations with foreign companies and investors are some of the tasks, say economists. The president may not agree with that list, but even Mr Curia, the government economics adviser, says the current economic model can continue only with the rigorous application of a series of adjustments, including a rise in the fiscal surplus.
Failure to get it right will worsen the situation of the poor. In wealthy Recoleta, black rubbish bags are opened by the cartoneros to extract cardboard and sell it. This profession was less prevalent before the 2001-02 economic crisis, which took a severe toll on the lower middle class and the poor. If a cartonero works very hard, he might make 70 pesos a week ($23).
For the cartonero, one of the 4.7 million Argentines living in extreme poverty – plus the further 13 million living in poverty, according to NGOs, rather more than government statistics admit to – elections may seem irrelevant. But even those least disposed to give this government credit admit reductions in the poverty numbers have been made as the economy booms.
Kirchner double act
The trick for Mr Kirchner will be to build on that growth and sell some unpopular measures to a population used to hearing only good news from him. Or delegate those decisions to his wife. Rumours are rife in Buenos Aires, spurred on by the president, that senator Cristina Fernández de Kirchner might well be proffered as the Peronist party presidential candidate in October. In Argentina, there is a 20th-century precedent of powerful spouses such as Eva ‘Evita’ Perón (second wife of president Juan Perón) and Isabel Perón (his third wife). The latter actually became president after Mr Perón’s death in 1974.
Allowing his wife to get elected, according to political theorists, would allow Mr Kirchner to offload difficult decisions to her while himself returning to power at the next elections in 2011.
The theory sounds ludicrous. But then Argentina is a country that resists sensible prophecies. After all, Jorge Luis Borges, an author with an obsession with labyrinths, is its best-known writer.
