Argentine Shock

Argentina’s election is more complicated than simple economics, but for the first time in a very long time there will be no Peronist in office. It may have been billed as a contest between the candidate of the market and that of the state, but either would have found the same bottom opening up on the nation. As so many other places, such as Canada moving in the “opposite” direction, whoever was in office was bound to be handcuffed by the financialism driving economic circumstances.

Even the Economist, normally a visible friend to the statist helping hand, had become disenthralled by what Argentina had become and what is left of the economy.

True to her Peronist pedigree, Ms Fernández has hoarded power and suppressed dissent. She has bent the central bank to her will, muzzled the government’s statistics institute and bullied the media…

The government keeps the peso overvalued. It taxes soyabeans and other exports, thereby punishing the country’s most competitive producers. It has repelled foreign capital by defaulting on debt and refusing to settle with its creditors. To husband foreign exchange, it restricts imports. Ms Fernández distracted Argentines with lavish spending on welfare and energy subsidies. That trick will not work for much longer. The country is in danger of running out of reserves; the budget deficit this year is likely to be 6% of GDP; inflation is estimated at 25%; and growth is absent.

The country is not “in danger of running out of reserves”; it had already done so starting around March 2008. By any real count of international exchange as it is today, not what is thought to be, what Argentina possesses now is the holy rump of central banking taking to its most critical extremes. While Argentina’s neighbor Brazil tracks more closely to the global economic climate, which is already itself an alarming prospect, Argentina is simply further along that same “dollar” road.

This is not mere semantics or differences of categorization; the IMF strictly reports as much in the call sheets presented by Argentine officials. Unlike domestic accounts, as noted by the Economist above, foreign double counting must balance. The country ran out of the usual form of “reserves” years ago in the first “dollar” crisis that swept the world. It isn’t coincidence that Argentina was forced to “sell” “dollars” starting March 2008.