ARGENTINA'S ECONOMICTANGO
the 1970s – return to power... And the cycle starts again. Sure enough, that’s what happened in August, when a preliminary election unexpectedly showed that Macri would be kicked out. Overnight, the stock market collapsed 48% in dollar terms, and the Argentine peso fell as much as 30%. The so-called century bond, issued at a par of 100, fell 20 points. Pending final elections on October 27, Macri will likely be replaced by a bureaucrat who’s never held elected office – Alberto Fernández. But investors fear that he’s a Trojan horse for his vice president, Cristina Fernández Appearances are deceiving. If your pesos are inflating away at 5% a month, what else is there to do but spend them today? de Kirchner (no relation to the likely new president). She’s a Peronist who helped make Argentina’s current mess when she was president from 2007-2015. Argentina does economic crises like it does steak – thick, juicy, well-done, and plenty for everyone. The 2008-2009 global economic crisis – the gold standard of economic disaster for a generation of investors in most of the world – looks like a kid losing his lunch money compared to what Argentina suffers every several years. Over the past few decades, Argentina’s crises
more responsible, grown-up-in-the-room governments that come in to fix the mess. When the grown-ups do show up, investors come back, the stock market rises, and investors trip over themselves to lend Argentina money. The latest government of adults, headed up by a well-intentioned former engineer named Mauricio Macri, was able to sell $2.75 billion worth of 100- year bonds in June 2017. That’s how much investors wanted to believe that this time, Argentina – despite defaulting on sovereign debt eight times, including twice since the turn of the century – had finally turned the corner for good. Then there’s the International Monetary Fund (IMF), a multinational lender that’s always been at the ready. Just a year ago, the IMF made its biggest loan in history, a whopping $57 billion to Argentina. The problem is, thanks to the electoral cycle, the grown-ups don’t last long in office. To help pay for massive subsidies that Argentina’s spoiled voters have come to expect, successive governments mercilessly tax the country’s companies (Argentina has the world’s second- highest corporate tax rate.) Worse, the governments of grown-ups put in place economic policies designed to erase the stain of the populists. They also have to satisfy the IMF, which attached a lot of unpopular strings to its money. These almost always result in recession, currency devaluations, and unemployment. In turn, that guarantees that the populists – called Peronists, named for the charismatic general who was the country’s president three times between the 1940s and
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October 2019
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