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Amid chaos, Argentina bets on Kirchnerism and could sink even further

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Vice-presidente argentina, Cristina Kirchner, e o presidente do país, Alberto Fernández, em ato popular, em dezembro de 2021, em Buenos Aires.

Argentine Vice President, Cristina Kirchner, and the country’s President, Alberto Fernández, in a popular act, in December of 2023, in Buenos Aires.| Photo: EFE/ Juan Ignacio Roncoroni

In view of the economic, energy and food reinforced by the war in Ukraine, the world needs more fuel and food. An unprecedented opportunity for Argentina, which has the second largest reserves of shale oil and gas and is a leading producer of corn, wheat and fertilizers. It would be the ideal scenario for strengthening the Argentine economy, were it not for Kirchnerism.

The economist and professor at the University of Buenos Aires Flavio Gonzalez explained how the neighboring country must once again miss an opportunity to develop. “Conditions are very favorable for exports, as perhaps the country has never had in its history. The problem is that, with the Kirchnerist government, it is very difficult to take advantage of this scenario,” he pointed out.

The influence of the country’s vice president, Cristina Kirchner, in the direction of Argentina’s economic sector was evident once again time with the inauguration of the new Minister of Economy, Silvina Batakis. She replaced Martín Guzmán, who was heavily criticized by the vice president. Batakis’ appointment was treated as a victory for Kirchner’s political group.

For Gonzalez, despite the economic problems that haunt the world and the country today, such as inflation, political problems of Argentina is what makes the country “not find solutions”. And, according to him, this question is rooted in Kirchnerism.

“The political problem is more serious than the economic one and President Alberto Fernández has no power. The vice president has power”, reinforces Gonzalez, pointing to the fact that this inversion in the hierarchy is an “anomaly”.

In an interview with Gazeta do Povo, the economist listed the economic obstacles that are ignored by Kirchnerist priorities: fiscal deficit; anachronistic labor legislation; social programs that perpetuate poverty; taxes and economic legislation that do not allow for a friendly environment for companies and foreign investment, uncontrolled currency issuance, inflation and devaluation of the peso (result of the lack of credibility of Argentine policies).

Lack of credibility prevents foreign investment

Last week, the US ambassador to Argentina, Marc Stanley, told the Senate that US companies have great opportunity to invest in the Latin American country, but who do not do so “because of the risk they run due to restrictions on access to capital imposed by the government”.

Stanley stressed that the country needs to leave behind the old way of relating to the United States. And he pointed to the wave of foreign possibilities in the face of the global need for food and fuel, warning that Argentina is not knowing how to seize opportunities.

“I can’t believe they want to wait until 2000 to surf this wave”, concluded the diplomat, who highlighted the importance of next meeting between the Argentine president and his American counterpart, Joe Biden, to transform diplomacy between the countries.

Inflation in the country and taxation for companies

The war in Ukraine has reinforced a problem that Argentina has suffered for ten years. Argentines live with high inflation, which should be more than 64% in the accumulated of 2022, according to Central Bank forecasts. The inflation of 20, 3% accumulated from January to May represented the highest level for the first five months of the year since 1200 in Argentine.

The solution proposed by Argentine President Alberto Fernández was sent to Parliament in June. It is the bill that should create taxation for the “unexpected income” obtained by large companies, as a way of offsetting sharp increases in international prices.

According to him, the new taxation project also serves to comply with the US debt refinancing agreement $ 29 billions with the International Monetary Fund (IMF).

The novelty, of course, was not well received by the Argentine business community. The president of the Argentine Business Association (AEA), Jaime Campos, spoke in early June at an event to celebrate the 15 years of the entity, declaring that the new taxation is a setback. “We have more than 80 taxes in our country. And, in order to grow again and generate employment, it is necessary to reduce taxes”, he reinforced.

Currency devaluation and debt with the IMF

The price of the dollar in the informal market has broken records in Argentina, and the country faces the challenge of increasing its net reserves by US$ 5.8 billion this year, a commitment made in agreement signed in March with the International Monetary Fund (IMF). In the same negotiations, the financing extended to Argentina of US$ was agreed 41 billion.

The Kirchnerist bench, in the different political instances, was against the agreement with the IMF, negotiated by Martín Guzmán , now former Minister of Economy, is that it could be one of the solutions to the country’s economic problems. Kirchnerism has historically not prioritized public debt, which makes it difficult for the country to regain international credibility.

“I do not believe that the government can meet the goals with any Minister of Economy, because it is not in the Kirchnerist DNA to fight the fiscal deficit”, reinforces economist Flavio Gonzalez. “The political problem practically paralyzes the government. Kirchnerism is a problem for the country’s solutions”, he concludes.

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