Should he stay or should he go?


How long will Economy Minister Martín Guzmán last? First, it underwent a final 2021 budget change that significantly increased the budget deficit. Then he was forced to swallow a sudden change in the formula used to calculate retiree and pension payments, further increasing the pressure on the already strained government coffers, orchestrated by none other than Senate President Cristina Fernández de Kirchner.

Last month, Minister Guzmán observed that the already announced increase in utility bills expected for January – a prerequisite for reducing reliance on state subsidies – has been pushed back at least until March.

All of these measures run counter to Guzmán’s own plan which was based on a prolonged period of moderate fiscal consolidation that put the economy on a path to sustainability. And they are helping to delay an agreement with Argentina’s biggest creditor, the International Monetary Fund, which the minister knows is essential to give the country a boost in order to “get back on its feet”, as he likes to. say President Alberto Fernández.

Underlying all of these actions is the internal and external power balance of this coalition government, with Alberto looking weaker and weaker as he is pulled from side to side, trying to keep everything in check. world satisfied in the midst of a calamitous economic implosion and a global pandemic that is starting to get ugly again across the world. To make matters worse, President Alberto has vowed to vaccinate millions of people in recent months, but Health Minister Ginés González García is locked in a war of words with Pfizer

, while Russia’s highly anticipated Sputnik V vaccine is not yet safe for the main risk group, patients over 60, as Vladimir Putin informed the world in December. Guzmán’s budget foresees an economic expansion of 5% in 2021, which should be higher, if and only if the inoculation allows the release of animal spirits.

Guzmán had to fight for his right to hold the economic reins of the country. A few months ago when the currency controls tightened known as “super cepo“proved unable to contain the value of the black market exchange rate or the”dollar blue ”, the minister was given the keys to the“ economic cabinet ”, anointing him a first among peers with authority even over the supposedly autarkic central bank

and its president, Miguel Ángel Pesce. It was Guzmán’s second victory after successfully completing the restructuring with private creditors. It succeeded in containing the black market rate, putting downward pressure on multiple dollar exchange rates and even allowing the central bank to buy back reserves. While it may have come at a high price – increased leverage in peso instruments tied to inflation or the US dollar – it was a third victory for the former Columbia University scholar.

However, his successive successes on colleagues who respond to President Alberto seem insufficient in the face of political decisions coming from the Instituto Patria, the Kirchnerite think tank. Guzmán’s series of policy reversals in 2021 mentioned at the start of this column sends a clear message: austerity will not be tolerated, let alone in an election year. It also indicates a clear ideological tendency close to Ms. Fernández de Kirchner to rely on state interventions to control major macroeconomic variables.

This is something Cristina already attempted in her second term, when the economic hangover of the global financial crisis ended the commodities supercycle and eroded Argentina’s double surpluses. Cristina appointed the current governor of the province of Buenos Aires, Axel Kicillof – a self-proclaimed Marxist – head of the Ministry of the Economy and the combative Guillermo Moreno as Secretary of Commerce to oversee a controlled economy. The result was devastating, leaving Mauricio Macri in a situation of stagflation, deep deficits and default. In the end, Macri detonated the time bomb, leaving behind scorched earth and desolation.

Guzmán’s appearance in Alberto’s cabinet brought an absolute outsider to play a major role at a critical time. Criticized for being too young and academic, he took with him a solid ideological baggage, denouncing the IMF’s austerity plans but prescribing a fairly orthodox antidote based on reducing public deficits after a certain level of debt cancellation. He fought the BlackRocks and Fidelitys of the world and won the good grace of a certain CFK. Alberto gave him control over economic policy making and Cristina would hold meetings with him and publicly congratulate him.

However, what good is this type of Minister of the Economy if he cannot carry out his decisions? One of the major problems of Argentina’s economy is its network of subsidies which keeps public services cheap. In the 2021 budget, Guzmán predicted that energy subsidies would remain stable at around 1.7% of GDP, or some $ 624 billion. During Cristina’s second term, subsidized energy bills caught the government in a vicious cycle, unable to raise prices for political reasons, but forced to spend growing numbers of dollars to, literally, keep the lights on. on. Macri tried to sort this out, drastically increasing the cost of energy, to the detriment of his re-election. While Energy Secretary Darío Martínez has said they will not keep the cost of energy artificially low, promising to raise prices in line with inflation, a presidential decree extended the freeze on energy. prices at least until March, transferring the power to initiate price negotiations outside of Guzmán’s. to reach. The decision is attributed to the Kircnherite part of the ruling coalition, the Frente de Todos.

It is not the only direct intervention in the economy, and it certainly will not be the last. There is no doubt that IMF Managing Director Krystalina Georgieva has taken note of yet another policy decision that will increase the 2021 budget deficit above Guzmán’s initial projections. Is it possible to win this year’s midterm elections while executing a budget tightening plan? Can Argentina regain macroeconomic balance if it does not tackle its deficit? Will Cristina allow Alberto to sanction Guzmán’s fairly orthodox plans? Former Nobel laureate Joseph Stiglitz, one of Fernández de Kirchner’s favorite economists, has reportedly threatened to resign in the past if he did not have the power to determine economic policy. In public, he said his plan was to stay and put the nation on the path to economic sustainability. It’s just not clear how he’ll do this if he’s not calling the shots.

This room was originally published in the Buenos Aires hours, Argentina’s only English-language newspaper.

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