The disasters of Kirchnerism and the smoke and mirrors of Juntos por el Cambio bring Javier Milei’s presidential candidacy close to home and promote it.
By Karin Hiebaum
Libertarian, Liberal, Economist and much more!
The MP for La Libertad Avanza, Javier Milei
The Congressman for La Libertad Avanza, Javier Milei
Rarely is Argentina going through the worst period of its history.
Although it may seem that the government is devoted to defending Cristina Kirchner in her judicial troubles, in reality its most strenuous work, and perhaps the only one that succeeds, is to promote the presidential candidacy of Javier Milei.
A real birth and nightmare for Argentines.
The fiscal mega-expansion aimed at paying for the ruling party’s electoral campaign in 2021, financed with the second highest monetary issuance in recent decades – the highest was in 2020 – ended up having an impact on an acceleration of inflation in the first months of 2022. Cumulative inflation in the first quarter was 16.1%, the highest since 2002, in the context of widespread price controls, and a tightening of tariffs and exchange rates.
High inflation is having a major impact on the government’s popularity. In periods when inflation accelerates, the majority of the population, who receive fixed nominal remuneration such as salaries, pensions or social plans, lose purchasing power. Inflation has risen to levels that already make it too much of a nuisance for everyday life. The price system is losing effectiveness; consumers do not know whether they are paying dearly or cheaply, and producers are losing the compass that in low or moderate inflation regimes provides the relative prices of costs and sales, and are gradually beginning to turn to simpler rules, such as following the dollar exchange rate.
The economic situation is still being discussed. All surveys show, mainly due to the acceleration of inflation, a marked deterioration in the social mood and expectations for the future. Caught up in the whirlwind of inflation, the government is facing yet another storm: economic stagnation. Cristina Kirchner may blame it on the IMF agreement. But the truth is that the end of the fiscal impulse in 2021 was going to lead to stagnation in 2022 anyway, in a country that lacks engines of growth other than fiscal spending, and that has the private sector drowning in taxes.
According to an analysis by La NACION, it stated: In this context of accelerating inflation and recession, it is to be expected that salaries, social benefits and pensions will run behind inflation. But the government, alarmed by this prospect, has anticipated the opening of the bargaining process and given an extra bonus to retirees and recipients of social plans. The bargaining agreements include requests for increases of up to 85%, as in the case of truck drivers, and in all cases have clauses for reopening in the last months of the year. The unions, for some strange reason, do not believe in the promises of Minister Martín Guzmán.
That is to say, faced with the spectre of a slowdown in consumption due to the fall in inflation-adjusted incomes, the rulers opted to grant or authorise the negotiation of new nominal increases in incomes. The measure may delay the economic slowdown for a few months, but it will not prevent it, and the cost will be an even greater acceleration of inflation. Wage increases will be passed through to prices within a few months.
Added to this cocktail is the fact that the Central Bank is having to accelerate the depreciation of the peso in the official market. On an annualised basis, the depreciation is close to 60%, compared to a devaluation against the dollar of 22.1% in 2021. The reason is simple. At this exchange rate, the Central Bank is not being able to add reserves. According to the programme agreed with the IMF, it has to accumulate US$ 4.1 billion in the second quarter, which is the quarter with the highest agricultural exports. In the first 20 days of April it accumulated only US$127 million, compared to US$1127 million in the first 20 days of the fourth month of 2021.
Will MILEI be the salvation for Argentines for being different?
Further peso depreciation, higher wages, and tariff hikes in June. In other words, what can be expected is that the social mood will deteriorate further in the coming months, given that inflation will comfortably exceed 60% in 2022. Depending on the outcome of the wage bargaining, it may even exceed 70%.
It is in contexts like these that politicians who offer easy solutions to people’s everyday problems tend to appear. In the United States, Donald Trump blamed China and Mexican immigrants for the deteriorating purchasing power of the middle class, and won the 2016 election.
It is hard to believe that the same will not happen in Argentina as in the rest of the world, in the face of acute crises in the economy and in the traditional parties. The deteriorating social mood encompasses the main opposition coalition, which has no anti-inflationary credentials, as inflation accelerated sharply during its term in office.
All it takes is someone to interpret the sign of the times. That sign in Argentina is frustration, anger with the ruling elites and the feeling that the fruits of our labour are being stolen from us.
It is in this context that Javier Milei’s proposal for the dollarisation of the economy must be analysed. From an economic point of view, the initiative makes no sense. Not because of theoretical digressions about the benefits of adopting the dollar compared to having an independent currency, but for a much more prosaic reason: there are no dollars. To dollarise the economy you have to have dollars, to convert the monetary base and peso deposits into dollars, otherwise they must be liquefied or restructured.
However, to discuss this initiative or others that the candidate puts forward from a technical point of view is to lose the focus of the problem. The focus of the discussion to understand the Milei phenomenon is on the detection of symptoms, not on solutions. His facile proposals are technically inconvenient or politically difficult for him to implement, but this will not lead him to lose votes if these proposals respond to genuine concerns of the population, as in the case of inflation.
No one in the ruling party can offer solutions to the population’s problems. They are so disoriented that they are reminded of an anecdote from the Malvinas war recently told in La Nacion by conscript Milton Rhys. According to him, General Menendez asked for arms and ammunition from Galtieri, who sent television sets for the Kelpers. Similar to today’s government. People ask to be able to eat, and Oscar Parrilli offers them the return of Fútbol para Todos.
Milei’s emergence should also become an organising phenomenon for the discussion within Juntos por el Cambio. The social demand is not only to reduce inflation, which requires attacking the fiscal deficit. It is important to understand that this reduction cannot come from new taxes, but from a frontal attack on the multiple sources of waste and corruption that exist at all levels of the public sector. This includes not only the national public sector, but also the provinces and municipalities, public enterprises and the many bodies that live off taxes and contributions. It must also include a change in the trade union model and in the distribution mechanism of social aid. The traditional parties have to stop cheating themselves, thinking that the country can continue to function as it does today, when it has been stagnating for decades and poverty is growing. Argentina is crying out for a shock of capitalism, allowing people to keep the fruits of their efforts, and also for the separation of state and party, a problem that has plagued us since the middle of the last century.
This is Milei’s agenda, because it is the one that best interprets the social mood. This trend is not going to change, but will be exacerbated, because inflation will rise and activity will stagnate in the coming months. The government, with its infinite incompetence, is working hardest on Milei’s candidacy.
Liberal groups are hoping for a great Alliance.
Por Karin Hiebaum
Profesora universitaria,
psicóloga y corresponsal en Europa
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