The Fall of the Latin American Left, Part III: Argentina and the Right Winning Elections

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By Ignacio Portes, formerly the economy editor of the English-speaking daily Buenos Aires Herald. He has also published at Pando Daily and NSFWcorp. See Part I in this series here and Part II, here.

Unlike Brazil and Venezuela, the years of economic trouble for the Kirchner family and their Victory Front party in Argentina won’t go down in history as actual crashes. Other than in the immediate aftermath of 2008’s Wall Street collapse, no recession in the 12 years they ruled the country went past 2% of GDP or lasted more than a year, all while social security programmes cushioned the impact that any of those blows had on people.

Since the Victory Front’s defeat in the 2015 presidential elections to the upper-class, pro-business Let’s Change coalition, Argentines’ living standards haven’t exactly improved, as Mauricio Macri’s first year in government saw another 2 percent recession plus regressive income re-distribution and economic reforms that left groups of small businesses struggling to stay afloat, not to mention soaring public debt.

That gives Macri’s opposition enough ammunition to put him on the defensive and attack his policy reforms although, of course, new presidents always have a couple of standard rhetorical tools to fight back in such situation, like blaming things on the previous guy.

It’s not easy to pull that off in today’s Argentina, however. Just the fact that the Kirchnerite decade did not end in total economic collapse, like Argentine political cycles usually do, makes it harder to justify changing the country’s course or unleashing any “painful but necessary” economic reforms.

2001’s financial crash, with citizens’ savings seized, a five-year recession and unemployment above 20%, made citizens accept the pain of the massive devaluation that came with the exit of the 1990s peso-to-the-dollar peg, and left the door open for a smart politician like Néstor Kirchner to run up against that decade’s neoliberal consensus in 2003, joining the continental shift to the left.

A decade before, the 1989 crisis, with two hyperinflations, rising poverty levels and state-owned firms going under water, had left the scene ready for a pro-market turn full of budget cuts, firings and privatizations, in line with the post-Soviet and post-Reagan times. Similar things could be argued about even older economic crashes, such as those of 1975 or 1982, which helped the bloody 1976-83 dictatorship first rise and then fall.

Every Argentine that lived through those crises knows that 2015, the last year of Kirchnerism, was far from the country’s harshest years. 2% GDP growth and unemployment below 10 percent looks far from the end of the world when you contrast it with 2001-2002.

Among Macri’s supporters, however, the belief that the previous administration took the country to the edge of the economic abyss is a core one, as is the idea that today’s economic struggles are in good measure explained by damage done under the previous government.

The most common response from Kirchnerite circles to this line of thinking is that of disdain: those people must be either ideologically deluded, or lying due to personal interest. It’s a mentality not that different to that of many US Democrats towards demographics that they lost: they must be either stupid or evil. But also like in the US, it’s not hard to find Argentines who are currently angry at the outgoing party but had also backed it during previous years in office. The natural question, then, is how and why did those minds change?

It’s interesting to look at the results of the 2011 general election and compare it to those of 2015. Not only did Cristina Fernández de Kirchner win that year’s election by a landslide, taking 54% of the vote, but the second place, with a distant 17%, went to the Progressive Front, another centre-left coalition.

Four years later, the Kirchnerite coalition could not field any competitive left-of-centre option in the primaries, and three candidates that could broadly be seen as centre-right took more than 90% of the ballots when combined.

So even though the Kirchnerite left was part of one of those three coalitions, the fact that society moved to the right between both presidential votes seems incontestable. And despite the far from stellar start for Macri’s government, for many people that is where they remain.

What moved those minds rightwards, then? For a start, the economic improvements of the first Victory Front years fizzled out by the end of their run. Unemployment, poverty and inequality figures stalled, the economy didn’t grow on average since 2012 and even shrank in per capita terms. That didn’t mean there was stability, either: the ride of the last few years was actually quite bumpy, with the 2014 run against the peso arguably the most panic-inducing moment.

Those last years in office were defined by the government’s struggle to hold a grip on the country’s currency markets. The story might sound familiar, especially if you read Part II of this series. It began in 2010, when the Argentine Central Bank started selling foreign cash below its local going rate, causing the peso to strengthen in the official currency market, and thus raising its purchasing power — for a while. This helped win the 2011 election, as everything from salaries to corporate earnings rose massively in real terms that first year, at the expense of the Central Bank’s coffers.

But soon, problems started to mount. Corporate and retail investors used every extra Argentine peso they had to buy the US dollars that the government was selling on the cheap, but no one wanted to sell any dollars back to the Central Bank. The strong peso made local production struggle, first due to cheap imports and, when the Central Bank’s dollars and thus the capacity to buy abroad started to run out, due to lack of inputs and spare parts that weren’t manufactured at home. The government tried increasingly tightened currency controls, limiting citizens’ expenditure on holidays abroad and purchases of hard cash for saving purposes, but that only led to a surge in black markets.

Just like in Venezuela, speculation against the local currency ended up becoming one of the most obviously profitable enterprises available, much more than producing anything. The government responded by saying it was all the result of a media and finance campaign to topple it, but could never reverse the trend. Buying at official rates and selling at black market’s; buying when a devaluation was just about to become inevitable, hoarding and selling when prices skyrocketed: there was no easier money in the country for those with the means to pull those moves off, but it was hard times for the uncertain rest.

Of course, things never got as grim as in Venezuela. For starters, Argentina is a massive food producer, and with much more diversified exports too, so hunger-level scarcity due to lack of imports wasn’t coming even far on the horizon. The Central Bank never fully ran out of resources either: it came close, and it even accepted some of the worst deals possible with Buenos Aires’ financial district’s brokers (paradoxically, one of Macri’s bases of support) to buy time in 2015, ensuring the economy would run as smooth as possible during the election year even if it cost the State billions in the long run. But empty supermarket aisles were never a sight in the country.

Yet the scare had very real effects. Fear of experiencing what they saw on TV from Caracas led many to the right in Buenos Aires. After winning the election, it also gave the Macri administration an easy stick to beat its critics with: “it was either us or that.”

Scaring voters with Venezuela horror-stories is now becoming a strategy for the right across the continent. In Colombia, the paramilitary-linked former president Álvaro Uribe used it to successfully torpedo a referendum for a peace deal between the state and the FARC guerrillas. In Ecuador, the centre-left presidential candidate Lenín Moreno barely held to his predecessor Rafael Correa’s position earlier this month after Maduro’s authoritarian escalation dominated both the regional news cycle and the opposition’s closing campaign rallies.

Often, the comparisons don’t make much sense. Correa’s main problem in Ecuador has never been pursuing a wrongheaded monetary policy, but being unable to have one, due to the straitjacket of dollarization in which the country was put two decades ago. With the price of its main exports tumbling, a monetary sovereign country would typically let its currency depreciate to avoid trouble, but Ecuador is undergoing the opposite process, as the US dollar over which they don’t exert control is actually going up. So they’ve been depending on Correa’s budget management abilities alone to stay afloat within very limited margins.

In other countries where the left still stands, like Bolivia, there is actual monetary sovereignty and things work just fine. Inflation there has hovered between one and two figures without any of the currency problems seen in Venezuela or Argentina (contrary to the mantra that elected authorities can’t be trusted to handle economic policy, a popular trope among Latin American analysts), while also avoiding the kind of private debt crises seen in Brazil, all amid the most egalitarian and stable government in the country’s history, with strong economic development to boot too.

But at this point, those governments are in the minority. In most of the region, the right-wing turn is underway, and could have energy to last a while. Eventually, the tide will turn again: the ingredients are there, it being the most unequal continent on earth, with a ruling class that has historically shown massive neglect for its poor and not even much acumen to keep the economy from blowing up. But it will take some sifting through debris and patient rebuilding to recover the political capital lost by the left through all those unforced errors and make the best of the next chance.

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  1. PlutoniumKun

    Thanks for these articles – a very interesting overview (and I look forward to the always excellent btl comments later).

    One thing I would be interested in would be to dig more deeply into the details of where exactly Venezuela went wrong with managing their currency. Argentina under Kirchner seem to have done a better, if not perfect job, while Ecuador and Bolivia seem to have done ok, despite having very different monetary regimes. The use of a floating currency with strict capital controls would seem the best way forward for most progressive developing countries?

    1. José

      A very interesting case is Brazil. The country has had a (somewhat managed) floating exchange rate regime since the Real plan was implemented in 1994. There are essentially no capital controls and no black market for dollars or euros. The Partido dos Trabalhadores (PT) administrations, in power from early 2003 to mid 2015, kept the floating regime in place.

      The central bank has set real interest rates at high levels since 1994 in part to prop up the Real – indeed, those high rates have more than compensated for the depreciation of the currency versus the dollar (it’s 3.15 reais for one dollar now compared to a 1:1 ratio in 1994). An investor maintaining its funds in Reais at the policy rate since 1994 would today have more dollars after conversion at today’s exchange rate than someone who chose to buy dollars at the 1994 exchange rate and invested them in short-term Treasuries until now.

      Brazil has certainly made many mistakes in economic policy but its exchange rate regime is a success story when compared to those of neighboring countries. Maybe this example provides some lessons that future left/wing administrations in Latin America should pay heed to.

      1. JohnnyGL

        Don’t give them TOO much credit. Brazil probably has more sovereignty (monetary and political) than any other country in S. America. Its size, and that it probably has the most diversified industrial base of any country on the continent give it much more latitude on policy.

        However, Brazil definitely has become too oriented towards commodity exports. The Perry Anderson article I linked to in the first article of this series briefly addressed the ‘hollowing-out’ of industry.

    2. Ignacio Portes

      I would certainly not describe the Kirchners’ currency management as “perfect.” Better than Venezuela, yes, but that’s a very, very low bar, Venezuela’s performance in that department can be fairly described as catastrophic. A large part of the Kirchner’s downfall is explained by the chaotic currency management which led to the 4-year stagflation and soaring black currency markets of the last presidential term.

      1. PlutoniumKun

        Thanks Ignacio. Yes, I didn’t mean to say the Kirchners had a very good monetary policy, its just in comparison to Venezuela, etc. What was the key reason for the bad decisions? Outside pressure, or just a poor understanding of what was required?

  2. Jim Haygood

    Those last years in office were defined by the government’s struggle to hold a grip on the country’s currency markets.” — Ignacio Portes

    Indeed. But currencies don’t just start sliding for no reason. Argentina’s central bank was increasing the asset side of its balance sheet by about 30 percent annually during Kristina’s term. Chart:

    Unsurprisingly, inflation began to follow the trend of monetary base growth. When it did, Kristina fired the head of Indec (Argentina’s statistical agency) and ordered her replacement minions to report inflation at 10 percent max, no matter the actual value (which reached 30 percent and more).

    It wasn’t only the official lying which eroded confidence. Argentina had inflation-indexed bonds outstanding. Falsified inflation was cheating the bondholders (many of them Argentine small investors) out of 20 percent per year, leading to disgust with the official racketeers.

    Sadly, Argentine culture tends to glorify clever swindles, especially when foreigners are the victims:

    Nine Queens (Spanish: Nueve Reinas) is a 2000 Argentine crime drama film written and directed by Fabián Bielinsky and starring Ricardo Darín, Gastón Pauls, Leticia Brédice, Tomás Fonzi and Alejandro Awada.

    The story centers on two con artists who meet and decide to cooperate in a major scam. The film was nominated for 28 awards and won 21 of them, and is now considered a classic in Argentina’s film history.

    Whether the Macri administration will finally reverse the long-standing culture of official dishonesty which underlay Argentina’s unprecedented record of having lopped thirteen (13) zeroes off its currency in the past century remains to be seen.

  3. James

    The links to Part II of the series do not work. I would be very grateful to anyone who could provide them.

  4. Guglielmo Tell

    I wonder if it’s got anything to do with my comments there or with the Media War against Venezuela as a whole.
    Today, on May 1, Maduro summoned a new Constitutional Assembly. On one hand, it’s a punch to all the right-wing propaganda about “dictatorship” in Vzla, but on the other it will certainly test the very foundations of the Bolivarian Revolution.

  5. ChrisPacific

    As there are not many comments so far I thought I would chime in and say thanks for this series, which I have read carefully. It’s an interesting and important topic.

    1. johnnygl

      Agreed. Thanks for doing this.
      If possible, i’d like some additional info on how much damage the hedgies were able to cause argentina with their lawsuits over the old bonds. Reading at the time, the decisions seemed outlandish and needlessly punitive.

      Sorry if i’m giving homework assignments!

  6. RabidGandhi

    Aaargh! What a bummer this excellent conclusion got posted over the 1 May Workers’ Day holiday and I missed it. If anyone is still following comments here, especially Ignacio, here are my two centavos:

    1. Congratulations to Ignacio on a very informative balanced post, and an excellent series. Again, pundits from afar often fall into a Manichaen trap and want to see the South American Leftish presidents as being thoroughly socialist and popular, but this series has done a good job showing the different shades of grey here.

    2. One point about 90% of the votes in 2015 being cast for right-of-centre candidates. Before the general elections, the FpV (“Kirchnerists”) internally picked the most rightwing member of their party, Daniel Scioli, as their candidate, completely abandoning their base (sound familiar?). Thus it should have been up to the FpV to field a leftwing alternative to the rightwing (Macri) and rightwing lite (Massa). Instead they offered another option far to the right of public opinion. By the second round, the only options voters had were rightwing Scioli and even righter-wing Macri. So how can the public be said to have turned to the right, when the leftwing options were taken away from them by the major parties? And this can be seen now in the polls: the rightwing policies Macri is implementing (devaluation, austerity, attacking pensions, paying vulture funds, deregulation…) are not supported at all by the population.

    3. I’m not sure where the accusation of stagflation comes from: yes there was high inflation under the Kirchners (reaching 25% according to the opposition at the time), but the other factor in stagflation is recession, and as mentioned in the OP, there were no significant recessions under the Kirchners, with the overall balance being major growth.

    4. It’s an excellent point about the mismanagement of the exchange rate. But I do wonder if what would have happened if they had cracked down on the black (“blue”) market. Could there have been a revolt from the upper/upper middle class? On the other hand, the problem with taking the opposite tack and having no capital controls at all can be seen in the current situation, where capital flight is at an all time high (the so-called “financial bicycle”). So yes, this series shows that managing ForEx is an Achilles Heel for the SA leftish governments, but it would behoove us to discuss better currency management alternatives.

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