Weekly Report - 27 April 2023 (WR-23-17)

ARGENTINA: Teetering on the brink

With the peso in freefall, runaway inflation, the spectre of devaluation, growing poverty, and a high disapproval rating, it was becoming increasingly difficult for Argentina’s President Alberto Fernández to sustain the illusion that he might seek re-election in October. He finally stopped trying on 21 April. Although there was a sense of inevitability about Fernández’s announcement that he would hand over the presidential sash to a successor in December, it still succeeded in heightening political uncertainty, not least because the identity of that successor is so unclear. This is adding fuel to what looks like becoming the most serious in a long line of economic crises since the sovereign default and financial chaos of 2001-2002.

President Fernández announced his decision in an eight-minute video published on Twitter, adding that he would work to ensure that the ruling left-of-centre Frente de Todos (FdT) coalition selects a presidential candidate in an orderly process culminating in primary elections on 13 August. He decided to step aside hours after a private meeting in the party headquarters of the Partido Justicialista (PJ, Peronists), the mainstay in the FdT, when the radical left-wing Kirchnerista faction of the coalition led by Vice President Cristina Fernández demanded that he make his intentions known, while making it very clear that he would have no backing for a re-election bid. A survey published at the weekend by Opina Argentina showed his disapproval rating reaching nearly 70%.

It is unlikely that Fernández believed in his heart of hearts that re-election was a viable option. But he would have been keen to postpone any decision to pull out of the running for as long as possible because it denudes him of what little power and influence he had left. Even as it is, he faces a full eight months as a lame duck.

Now all eyes will be focused on Vice President Fernández and what she does. Máximo Kirchner, a federal deputy and her son, urged some 5,000 Kirchnerista supporters at an event in the city of Buenos Aires just hours after President Fernández’s announcement, to attend a speech she is giving on 27 April in La Plata, the capital of Buenos Aires province, to mark the 20th anniversary of the presidential electoral victory of her late husband Néstor Kirchner (2003-2007). Máximo made no mention of his mother’s intentions, and she maintained last December that she would not be seeking any elected position, although it was widely speculated at the time that, facing a court-ordered prison sentence for corruption, she would want at least a position in the senate to preserve her immunity from arrest.

Vice President Fernández is unlikely to use the occasion to shed any further light on her electoral plans. But there is no question that her Kirchnerista faction of the PJ will want to play a decisive role in choosing the ruling coalition’s presidential candidate. She might choose to endorse one of her allies for president, such as the interior minister, Eduardo ‘Wado’ de Pedro, who described President Fernández’s decision to step aside as “a necessary step to provide the necessary order and vitality to dream again,” or her former economy minister and incumbent governor of Buenos Aires province Axel Kicillof, who urged the FdT to “organise ourselves and present a clear [electoral] strategy”. She had appeared most likely to provide conditional support for the prospective presidential bid of the economy minister, Sergio Massa, but with Argentina once again facing an economic maelstrom, he looks like a political liability.

For his part, Massa confined himself to praising President Fernández for his “generosity”. His day job of preventing an economic collapse is challenging enough without the added distraction of running for president. The price of the free market or ‘blue’ dollar is soaring ever higher, approaching Ar$500/US$1, more than twice the official rate, as investor and public confidence in Argentina dissipates. “We have seen an atypical situation of rumours, versions, and false reports for several days now and its resulting impact on financial instruments tied to the dollar,” Massa tweeted.

Massa has very little room for manoeuvre. He has tried different exchange rates, particularly the ‘soybean dollar 3’. This offers agricultural producers a preferable exchange rate to encourage them to release more grains for export to bolster international reserves, but the rate of Ar$300/US$1 looks less attractive by the day and farmers have not been tempted, biding their time in the expectation of a devaluation. The benchmark interest rate could be pushed higher. It currently stands at 6.75% a month, beneath rampant inflation of 7.7% in March, but this alone is unlikely to cool the appetite for the US dollar.

Massa is attempting to persuade the International Monetary Fund (IMF) to accept the government’s call for a ‘re-think’ of the terms of its US$44bn debt programme given the present situation, exacerbated by a severe drought [WR-23-16], to secure an early release of disbursements of US$11bn due before the end of the year. But while the IMF is keen to avoid a messy economic collapse in Argentina, it is suspicious of how the government would use these funds either to prop up the peso or on pre-electoral spending.

The markets are rattled, not least because of the present power vacuum: nobody is queuing up to lend money to an outgoing government led by a lame duck. Even if the ruling coalition were to win October’s elections it could be with a Kirchnerista candidate, hostile to the IMF, and bent on pursuing totally different policies. There is also significant political uncertainty surrounding the opposition. The main right-of-centre Juntos por el Cambio (JxC) coalition needs to winnow the field of candidates, but those who remain are being forced to tack to the right and advocate more radical policies because of the threat posed by the far-right populist economist Javier Milei, who could well force his way into a second-round run-off.


The surging demand for US dollars is fuelled by the fear that things are going to get much worse. A government without power is in a weak position to provide the necessary assurances, and anchor expectations, to assuage the concerns of either the public or investors. The government confidence index (ICG) is at rock bottom. Even if the government can steer a way through the next few months, the primary elections in August could produce even greater economic turbulence if they generate more political uncertainty as they did when Mauricio Macri (2015-2019) suffered defeat in 2019.

Chinese respite

The government announced on 26 April that it will begin paying for Chinese imports in yuan instead of US dollars in a bid to reduce dollar outflows and relieve pressure on scant central bank reserves. In a statement it said that some US$1bn of Chinese imports would be paid for in yuan in April and US$790m per month thereafter. The announcement followed a meeting between Economy Minister Sergio Massa and Chinese ambassador Zou Xiaoli.

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