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.
