"Cristinomics" conditions the IMF negotiations
The government has always been vague regarding the economic model it has in mind or how it would achieve its goal of simultaneously supporting domestic consumption while remaining a competitive exporter. In short, how can it spur domestic absorption while seeking a balance of payment inflows to foster FX reserves at the BCRA and gain independence from the capital markets, or the IMF, for that matter?
When analyzing Alberto Fernandez’s (AF) economic decisions after a year of his presidency, it becomes clear that, aside from his response to the pandemic, his underlying economic model resembles that implemented by Cristina Fernandez de Kirchner (CFK) during her second mandate. Implementing such a model does not bode well for achieving external competitiveness and, in the long run, does not even help foster local consumption.
CFK’s model was defined as a discretionary economic program, with significant state intervention in the economy, using micro-economic measures to mitigate or delay problems that were primarily linked to macroeconomic imbalances. Eventually, these “micro solutions” that affected supply-chains, together with the financial suppression in the FX market that was used as an inflation anchor, added to domestic income support in an environment of weakening terms of trade and a falling tax base, all transformed the twin surpluses Argentina enjoyed during Nestor Kirchner’s (NK) mandate into twin deficits. In the end, the interventionist economic policies, in addition to raising tax-pressure to new record highs, ended suffocating private investment, productivity, and eventually, growth.
Over the past few months, AF’s government has implemented economic measures that remind us of CFK's policies. And it did so while monthly inflation started to rise (affecting real wages), and lately, the trade balance deteriorated (lowering FX inflows). Therefore, these policies effectively erode the alleged objective, which is to spur domestic consumption while seeking FX inflows.
In our report we review some of these measures, which we believe reflect a worrisome political trend. In the following sections, we present some of the affected economic indicators to quantify the problems.
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