By Bianca Fernet, Argentina, The Bubble:
Economy Minister Axel Kicillof strutted his economic stuff on Monday in a 35-minute interview with La Nación. Besides the fact that the interview took place on the Conversaciones platform, which looks suspiciously like a transporter platform from Star Trek, Kicillof stunned many by admitting that a negotiated payoff to the so-called “vulture funds” is inevitable.
President Cristina Fernandez de Kirchner’s administration has garnered vitriolic political support by repeatedly vowing never to negotiate with Paul Singer’s investment funds and vilifying political opponents as willing to sell the country and it’s people to foreign powers, with references to Hitler thrown in. Heavy accusation. So it came as a surprise when Kicillof, currently campaigning for a seat in Congress, openly admitted that “to pay is a trap. To pay nothing is impossible. I understand. So we are working in a negotiation.”
Kicillof explained that Argentina’s strategy with the holdouts can be compared to what was done with Repsol following the nationalization of now state-owned oil company YPF. He opined that no reasonable person or country agrees with Griesa’s ruling, and that Argentina is currently gathering negotiating strength and clout by waiting for the right time to return to the table. He referred to presidential candidate Mauricio Macri, alleging that Macri has promised to pay the holdouts the full amount demanded, thus removing the incentive for the holdouts to negotiate with the current administration.
So according to Kicillof, the current administration’s outspoken vow to never pay the “vultures” is a tactic to weaken the negotiating position of these holdouts to reach a more favorable settlement. Conveniently, the president who will have to put his face on this politically unpopular decision will not be Cristina – it will be her successor.
The rest of Kicillof’s interview is well-worth listening to because Mr. Kicillof shows himself to be a competent statesman who will be with us well after the end of Cristina’s presidency. The Economy Minister is famous for his Marxist economic leanings, and in this interview he skillfully left politics aside and defended Argentina’s current dismal fiscal deficit as countercyclical spending rather than populist pandering.
Let’s take a step back. Most economists agree that the economy moves in cycles – growth and recession. British economist John Maynard Keynes is credited for introducing the concept that in times of recession, the government has a role and indeed responsibility to act counter cyclically by spending in deficit to shorten the recession. In plain English, even when revenue is down due to fewer taxes, the government should ramp up spending on infrastructure and other growth inducers, and maintain social safety net measures like unemployment that logically become more expensive during recessions.
Kicillof makes a fair argument, if Argentina’s current economic predicament were not self-imposed and a product of damning populist policies that only serve to maintain political support and will be near impossible for this administration’s successor to dismantle.
The logic underlying Keynesian deficit spending relies on two elements that Argentina miserably fails:
- Recession is an externally imposed situation, rather than the product of the government’s own actions
- Deficit spending is a temporary situation, to be paid for out of past and future surpluses
Kicillof blasts devaluation as inflationary, yet Argentina’s current economic trajectory is inarguably inflationary.
Kicillof refers to measures such a price controls as Keynesian countercyclical measures, yet this government has gone so far to permanently engrain these in the minds of the populace as to teach very young children to play video games in which they hurl balls with these policies at cartoon vultures in the style of angry birds. That’s not countercyclical spending, that’s indoctrination in a fairly sinister sense.
Argentina’s persistent and widening dual currency market, capital controls, and autarkic trade policy are neither countercyclical nor Keynesian in nature – they are unwanted byproducts of unsustainable decision making.
In this interview, Kicillof relied on multiple prominent economists’ predictions that Argentina’s economy will grow next year without attributing that prediction to across-the-board expectations that whomever succeeds Cristina will take steps to unravel the economic mess that has been made.
You can talk about Argentina’s economic woes as if they were cruel externalities all day, but they are political and self-inflicted, making them all the more difficult to cure.
Beam me up, Axel. By Bianca Fernet, The Bubble
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