Meanwhile, the government of president Mauricio Macri is now busy slicing and dicing away at public bureaucracies to cut costs, laying off hundreds and thus paving the way for the Justicialistas, the largest of the Peronista political parties, to move back into the Casa Rosada in Buenos Aires later next year.
Last month, the central bank hiked interest rates to 60%. Inflation is around 30% and getting worse, with real rates a usurious 30% now. If you are an empanada bakery, a hair salon or a supermarket, why bother holding pesos anymore? It has lost around 90% of its value in six months, making it worse than the Turkish lira, a currency which also faces the ire of President Trump.
Peronistas are not unanimous in their worldview. But for the most part, the two major opposition parties do not look fondly on the IMF. They will not be too concerned about bondholders in New York if they have to choose between paying them, paying public employees or keeping the lights on for the working class.
He may be able to win the hearts and minds of those working for the IMF and maybe a few investors looking for short-term guarantees that they will get paid. Looking further out, it is hard to see Macri winning the hearts and minds of the average Argentinian. If the economy falters, Argentina faces a hard left turn. Bondholders are getting worried, as indicated by price drops in the 100-year bond and increasing risks of default as measured by Argentina credit default swaps.
During the initial negotiations with the IMF in May, local surveys showed voters disapproved of the IMF deal by a margin of 3 to 1. That included nearly 60% of those who said they voted for Macri.
It doesn’t take a hard-core Peronist politician to sell a popular narrative that Argentina’s new pro-business elites in government have failed both the working and middle classes. The peso, high inflation and high-interest rates will be enough of an example unless the peso turns the corner. Higher taxes are also a drag on the economy.
Recently making the rounds on the internet is a video of central banker Luis Caputo—the second-wealthiest member of the Macri government—being accosted at a restaurant in the Palermo neighborhood of Buenos Aires by an entrepreneur for being a part of the problem.
Roughly three years ago, during a roundtable discussion I had with a number of Argentine entrepreneurs, the mood was cautious optimism over Macri’s election. They said that things could turn on a dime for Macri. There was a belief that Argentina is somehow cursed with moving one step forward and then one step backward.
Peronism was founded on the idea of sovereignty and protecting the common man from greedy capitalists. The Macri government just put Argentina under the guidance of foriegn lenders, who can make or break the peso. It’s a bad look that plays perfectly into the hands of the opposition.
“Unless Macri halts the current austerity script, we don’t believe he will be reelected,” says Vladimir Signorelli, a macro investment analyst at Bretton Woods Research in New Jersey. He recommends shorting Argentina.