As I pointed out somewhere along the line, Greeks were wary of the devaluation that would have accompanied a Grexit because they had bitter memories of how painful it was the last time it happened in the mid-80s (http://louisproyect.org/2015/03/02/why-greeks-might-fear-a-return-to-a-devalued-drachma/). Argentinians have had similar experiences as well, the latest installment occurring now.
NY Times, Dec. 28 2015 Argentina’s New President Moves Swiftly to Shake Up the Economy By JONATHAN GILBERT BUENOS AIRES — Mauricio Macri clinched Argentina’s presidency last month by tapping into voters’ fatigue with a leftist political movement that had governed for more than 12 years. Campaigning on a platform of change, and promising to unite feuding factions while largely dodging specific policy proposals, Mr. Macri took 51 percent of the vote. But now, just three weeks into his four-year term, Mr. Macri’s sweeping economic changes are roiling Argentina, accentuating the divide he wanted to bridge and leading some Argentines to doubt whether he will be a change for the better. “They voted for him to get the government out, but they didn’t think about what was going to come,” said Damián Raspa, 36, a machine worker at an electronics factory from La Matanza, a working-class district of greater Buenos Aires where Mr. Macri lost heavily to his main rival in the election, Daniel Scioli. Mr. Raspa, a father of two who earns about $615 a month, said he would now have to make his salary stretch because Mr. Macri’s government devalued the peso by nearly 30 percent in mid-December, to more than 13 pesos to the dollar from 9.8; it later strengthened slightly. The devaluation and a slashing of export taxes favored influential farmers on Argentina’s Pampas lowlands who had speculated about such moves by hoarding their grain harvests. They struck an agreement with Mr. Macri’s government to immediately sell billions of dollars of grain stocks, like soy, to ease the shortage of funds at the Central Bank. But while these agricultural exports are now more profitable for the farmers, for people like Mr. Raspa, the devaluation is eroding their salaries and fueling price increases as imports become more expensive. In his first days in office, Mr. Macri has made quick-fire, market-oriented changes meant to reinvigorate the economy after sluggish business investment and growth in recent years. In contrast, his predecessor, Cristina Fernández de Kirchner, who had bruising clashes with the farmers, preferred driving demand through policies like energy subsidies for consumers. Paving the way for the devaluation, Mr. Macri scrapped most of Mrs. Kirchner’s currency controls, an unpopular measure that had thwarted foreign investment because businesses were unable to repatriate their profits. He is also expected to end bureaucratic procedures that prevented manufacturers from importing needed equipment and parts. As the government seeks to reduce the largest budget deficit in three decades, Juan José Aranguren, the energy minister, has said the costly energy subsidies are being reviewed. Many Argentines welcome the changes. Daniel Álvarez, 57, who works at a hardware store in La Matanza, said that under the Kirchner administration, precarious Central Bank foreign reserves were being hemorrhaged to shore up the peso. “They didn’t leave a buck,” Mr. Álvarez said. “Both Macri and Scioli were going to devalue. There was no other option to get dollars in. Yes, it directly favors the farmers, but the idea is that indirectly it favors us.” By cutting export taxes for farmers — and manufacturers, too — Mr. Macri wants to increase business profits; easing import restrictions will provide greater scope to reinvest these profits, driving production and, subsequently, economic growth, his advisers say. Mario Blejer, a former Central Bank president who was an adviser to Mr. Scioli, said Mr. Macri was on the correct path. “Without growth, the redistribution of income is impossible,” Mr. Blejer said. “And to grow, you need investment.” But in the short term, there is the danger of fueling inflation, which is already about 25 percent, according to unofficial estimates frequently used because the national statistics institute’s figures have not been trustworthy. In turn, if real wages do not keep up, battles could break out between the government and powerful trade union leaders. Political and social organizations are already panicked about Mr. Macri’s moves. “We’re very angry and worried,” said Juan Grabois, a lawyer for the Confederation of Workers of the Popular Economy, which represents workers in Argentina’s gray economy, like recyclers and street hawkers. “This is the false theory of trickle-down economics that will only result in the destruction of Argentina’s social fabric.” Eduardo Levy Yeyati, an economics professor at Torcuato di Tella University here and a visiting professor of public policy at the Kennedy School of Government at Harvard, said Mr. Macri, who had tiptoed around his plans during the campaign, now faced the hard political task of following through with adjustments even though the economy, boosted by the government’s pre-election spending, improved this year. “There’s a disconnection between perceptions and the economic reality,” said Professor Levy Yeyati, emphasizing the unsustainability of a large budget deficit and an overvalued currency. “It’s impossible to explain these things to the public when they feel like they’re doing O.K.” Mr. Macri must also tread carefully, analysts said, because of his small margin of victory in the election. A decision to temporarily appoint Supreme Court judges by decree, bypassing Congress during its summer recess, was criticized as an overreach of executive power. This, together with moves viewed as steps toward the dismantling of a media law that is strongly endorsed by Mrs. Kirchner’s supporters, has left him less room for unpopular measures. Mr. Macri has already moved to cool the simmering economic tensions, keeping Mrs. Kirchner’s price control programs in place for now and offering a small one-time payment to around eight million recipients of state pensions or child benefits. Still, repercussions are already being felt. “It’s the workers who always pay for these crises,” said Raúl Lemos, 54, who manages a downtown paint store, as he clicked through an online price list showing that the price of some products had risen by 25 percent overnight. “Sales are going to drop.” Similarly, Sergio Camerucci, 52, who manufactures trophies and sells them to sports leagues, said the price of the plastic he needed to make the trophy bases rose by 20 percent after the devaluation. Most economists expect the devaluation — and the accompanying raising of interest rates to anchor the peso — to result in anemic growth or a recession in 2016 before a rebound in 2017, with perhaps growth of 3.5 percent, according to Sebastián Vargas and Pilar Tavella, Barclays economists in New York. This year, growth will be 0.4 percent, according to the International Monetary Fund; other economists predict it will be higher. Supporters of Mr. Macri seem to understand this progression. “The last 12 years were terrible,” Mr. Camerucci said of Mrs. Kirchner’s political movement, pointing to his falling sales over the last three years and the import restrictions, which made it difficult to buy the machinery he needed. “We have to be patient, but we are on a good path.” Daniel Scatilazzi, 44, who was selling homemade pies and sandwiches from a stall, said he would suffer as prices jumped but understood Mr. Macri’s motives. “I’ll put up with it,” said Mr. Scatilazzi, a former supporter of Mrs. Kirchner who voted for Mr. Macri because he wanted change. “We have to give him time to work. Let’s see in six months if this bears any fruit.” _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
