Tragic-Comic Economic Mess Hits Argentina’s New President

In her final weeks as President, Cristina spent every cent she could, by hook or crook, leaving central bank and economy in disarray.

By Bianca Fernet, Argentina:

Argentina’s new President Mauricio Macri took office today, but when the pomp and circumstance of the day’s festivities fade, he will be a man with an economic mess on his hands.

His predecessor, former President Cristina Fernández de Kirchner, ran an economy made up of piecemeal populist measures that slowly lost the illusion of sustainability in the minds of Argentina’s voting public. But beyond these actual policies, she did something else. In the final weeks of her presidency, she went out of her way to spend every cent she could and create economic problems for President Macri.

In one of her final speeches as President of Argentina, Cristina crescendoed with the applause-inducing point that, “A country is not a corporation.” While that is certainly true, countries, people and corporations have at least two things in common: they can run out of cash and they can drown in debt. Cristina’s administration spent all of the cash and deliberately ran up bills that can’t be paid.

Within the Central Bank (BCRA), official reserves have fallen to near US$25 billion. But official reserves do not translate into cash. Close to US$12 billion, or nearly half, are a swap line from China that Argentina could draw on. Another sizable chunk belongs to commercial lenders or is made up of blocked bond payments. Barclays estimates liquid reserves to be US $2 billion, while the Financial Times reported rumors that the true number is closer to US$1 billion. That is not a lot of billions to work with.

The “no cash” thesis underlying these rumors is supported by the fact that the national tax collection agency (AFIP) webpage that sells physical dollars to savers mysteriously crashed for four days at the beginning of December. In November, AFIP authorized roughly US$723 million to be sold to savers. The amount sold in the first few days of December was half of the amount sold in the first few weeks of November.

Besides spectacularly running out of cash, the BCRA issued approximately US$10 billion in futures near the official rate of 10 AR$/US$. These futures care are like tiny short-term dollar-denominated bonds. They oblige the BCRA to pay US$10 billion around March/April 2016 to holders and receive only AR$100 billion in return. If the Argentine peso is allowed to float to 15 AR$/US$ as the market suggests and President Macri has indicated, this means the BCRA has to basically give away for free US$3.5 billion.

That’s a lot more cash than they were left to work with in the first place, and it’s akin to stealing cash from Argentine people who could really use this money to deal with inflation.

The BCRA was banned from issuing dollars by the securities regulator (CNV) on December 1st, following a November 20th suspension of the Rosario Futures Exchange (ROFEX), local futures exchange, for trading these products. The CNV’s action stemmed the tide but won’t change the fact that in three months, Argentina will have to sell US$10 billion at a steep discount.

Besides leaving the BCRA in tragicomic disarray, Cristina also trashed the Economy Ministry and Treasury. Cristina’s former government ran the biggest fiscal deficit Argentina has seen in 33 years — 7.2% of the GDP.

Fiscal deficit is not to be confused with external public debt, although the two are related. A fiscal deficit is the shortfall between how much a government spends per year and how much money it takes in. 7.2% of the GDP is higher than any Organization for Economic Cooperation and Development (OECD) country, Brazil or India in 2015. Most countries that run fiscal deficits finance this difference by raising public debt or selling bonds. Argentina was effectively blocked from international capital markets, so it resorted to what is known as “monetizing” the deficit, or using the BCRA to print money and increase the money supply, devaluing the currency and leading to inflation.

In her final days in office, Cristina’s government announced a spending increase of AR$133 billion this year on salaries and energy subsidies. She signed an emergency decree divesting roughly AR$100 billion from state pension fund ANSES to select provinces, requiring Macri to pay this sum from the treasury immediately. There is also a AR$27 billion deficit with the AFIP tax agency. Days before leaving, Cristina also attempted to borrow an additional AR$22 billion from Banco Nación to finance the Treasury.

Cristina castigated the predecessor of former President Néstor Kirchner (her husband), for leaving behind a country in shambles and a nation in debt to foreign creditors. She has left her successor a nation with unsustainable debts to its own people and institutions in ruin.

That being said, President Macri knew he was up against an economic mess and still ran for the job. Cristina’s mismanagement is over, and both Argentina and President Macri will be better served by quickly assessing the damage and pursuing policies to redirect the economy than by crying over spilled Malbec. By Bianca Fernet, Argentina.

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  15 comments for “Tragic-Comic Economic Mess Hits Argentina’s New President

  1. d'Cynic says:

    Maybe someone could attempt to write a more comprehensive article. Argentina had left and right governments ever since independence, which is about as long as the US. It has similar geography, natural resources, immigration, and was never involved or destroyed in any major war. It is in a very friendly neighborhood. Still, it is not comparable economically to US. Argentina is just a paradigm, Brazil could be a better example.

    • Nick Kelly says:

      It’s a piece with contents described in the title, the spending of the last two weeks of the Christina administration, and is largely a statement of fact, that can be verified or falsified.
      It’s not a history of Argentina.

      • d'Cynic says:

        I think, you misunderstood what I was saying. Let’s recall the recent history. Argentina had a right wing government, headed by Carlos Menem, who embraced the Washington Consensus, and implemented privatizations and free trade. In the end, the economy crashes, and Argentina defaults on it’s debt. The public backlash brings in the government of Nestor Kirchner, who serves two terms and obviously is popular enough to pave the way for Christina. You see a pattern? Left or right does not lead to a different outcome.

  2. Michael Gorback says:

    This gives me the impression that Kirchner deliberately crippled her own country to spite her successor. I wonder if the spending was one last fling with crony capitalism, picking the last meat off the economic carcass for her associates.

    • d says:

      Leftist females seem to have a habit of doing that.

      helen clark oversaw 9 years of the largest boom the country had ever seen, spent every Cent of the revenue, and borrowed a fortune, deliberately leaving her rightist successors, nothing but unsustainable debt, and commitments to huge welfare spending, perfectly timed with the 08 disaster.

      She now runs a major department, at the UN, a job her girlfriend arranged for her before she lost her last election, which was a forgone conclusion.

      Look at the mess juliar gillard made before she was removed, in an internal party coup, she saw coming

      Leftist female power figures, seem to be some of the most vindictive, and malicious creatures around.

      • Richard says:

        Yes, this is why Hitlery Clinton must be stopped at all costs from winning the White House… And she has a REAL cause for vindictiveness against men (her husband). And she IS a vindictive and detestable creature to start with.

        Not a good omen. Not at all…

        • d says:

          Problem being, who else does America have, apart from Trump, Ugh.

          Sanders would be 1,000,000 % worse than Hillary.

          The way America is structured, POTUS, has a lot less power to do financial damage, than clark, gillard, or kirchner had.

          FDR Pulled the gold robbery, with the “cooperation” of Congress.

        • Richard says:

          “Ugh” is not an argument. Clinton is a very vindictive and angy, frustrated woman. She WILL press the nuclear button FIRST. It is going to happen. You will see (if you are still around to witness it). I, on the other hand, live on the other side of the world… so I will hear about it when I wake up in the morning.

        • d says:

          You live where it is still unsafe in the northern hemisphere, or with us on the bottom, where we may survive when all the northerners destroy themselves?

          Hilly, ambitious, egotistical, blatant liar, yes, not a warmonger, or a button push first type, which baby bush was and trump is.

          Ugh is a simple statement, not a argument, trump would be a ugly experience, Probably not involving wars, as everybody knows he would do it, so he is not the guy you try to push.

          Everybody knows O bummer wont, so he gets pushed, which is why he is still dangerous, as he could get pushed into an event, a real leader wouldn’t.

          Hilly in that regard is the same as trump everybody knows it will bite, so dont push it.

        • Richard says:

          “Hilly, ambitious, egotistical, blatant liar, yes, not a warmonger,”

          How can you POSSIBLY say she’s not a warmonger? She’s NUMBER ONE (along with Ashton Carter) to wave the flag for war.

          Look, do me a favor. Google “Hillary the Warmonger”, read any number of articles… then come back and apologise for your EXTREME ignorance on the subject…

        • Wolf Richter says:

          Your nickname for Hillary Clinton is over the limit for WS. All comments with that nickname will be blocked or deleted.

  3. Linda says:

    It sounds to me like Christina Kirchner was gutting her country and transferring all the money she could get her grubby hands on to accounts outside the country. She should be returned to Argentina in chains and tried for treason. Missing funds should be located.

  4. ping pong says:

    Cant they hunt her down like a wild animal?

  5. Not Impressed says:

    Cry Babies

    It’s always the leftwings fault yeah we have heard that a couple of times

    • d says:

      Truth hurts dosent it.

      In the case of south America, it is ALWAYS the left that make’s horrendous Economic messes, just the facts on the ground.

      Venezuela and Argentina being 2 of the prime Examples.

      As soon as the right tries to do anything that must be done, it gets ejected by populist leftists, making untenable promises, to economically disadvantaged masses, the epitome of what is wrong with the current model of “Democracy”. Which is in reality nothing more than french “Bloody Terror” mob rule.

      Or in the case of the US, where politicians are elected by the Media, and beholden to various corporates, some form of corporate controlled grid lock.

Comments are closed.