Signs of discontent amid a sharp economic slowdown in Argentina are growing, writes Tom Hennigan
DESPITE PREDICTIONS that their economy will grow by more than 5 per cent this year – which would make them the envy of Europe – many Argentines are increasingly angry at their lot.
For those still arguing that Greece and others would do well to emulate Argentina’s experience since its own chaotic default in 2001 and subsequent devaluation, the news from the River Plate makes sobering reading.
Residents are set to take to the streets of Buenos Aires tonight banging pots and pans in a noisy cacerolazo (making noise by banging pots and pans) while out in the countryside Argentina’s farmers have started a week-long strike in protest at a hike in land taxes.
For the government of President Cristina Kirchner the signs of rising discontent amid a sharp slowdown in the economy are multiplying.
Officials will need no reminding that the most serious challenge to the president since she took office was in 2008 when an alliance of the urban middle class and striking farmers defeated a proposal to raise taxes on grain exports. More ominously, huge cacarolazos helped force several presidents from office in 2001 as the country’s economy imploded.
Tonight’s demonstration in the capital is the second in just over a week organised on social media and comes at a time of deepening frustration within the middle class at capital controls that are making it increasingly difficult to buy US dollars, the Argentine refuge of choice from spiralling inflation.
Farmers are also pointing to rising prices as the principle reason behind a loss of competitiveness in their sector, which has already seen harvests hit by drought and subsequent torrential rains this year.
“We are not doing well and it is getting worse,” said Eduardo Buzzi, head of the Argentine Agrarian Federation, when announcing the week-long ban on all beef and grain sales.
“The protests are not as yet as powerful as in 2008 but the underlying problem is graver,” says Gustavo Lazzari, a political analyst in Buenos Aires. “Then the government was running a budget surplus. Today there is a deficit.”
That deficit is largely caused by and puts at risk the lavish and ever-rising social spending and fuel and transport subsidies that underpin Mrs Kirchner’s support. The spending has caused a consumer boom in recent years but without the investment to sustain it. Rising imports just as the global economy slows again has left the state finances exposed. Still shut out from international capital markets following 2001’s default, the government has increasingly taken to printing money to cover the gaps.
That in turn has further fed inflation. Despite all evidence to the contrary, the government insists inflation is under control with the annual rate in single digits. But few have accepted the official number ever since the economists responsible for compiling it were sacked in 2007 and replaced by Kirchner loyalists.
Independent economists put the real figure around 25 per cent and that has led to a run on the local peso as Argentines look to get their part of their wealth into non-peso assets. The currency controls are an attempt to stem this capital flight.
Though the currency controls mainly affect the better off, inflation is hitting the poor. A survey by the Catholic University of Argentina shows that using the real inflation rate the actual poverty rate is 22 per cent of the population, compared to the official figure of 6.5 per cent.
Though 22 per cent is a remarkable improvement on the 54 per cent registered at the height of the economic crisis in 2002, it is stubbornly high for an economy that grew at Chinese rates for most of the last decade and benefited from massive government spending.
“The growth of the last decade did not overcome the structural poverty that emerged in Argentina in the 1990s which saw the decline in formal and the rise of informal employment,” says Eduardo Donza, a researcher at the university.
With cash becoming short and inflation a key factor in a slump in the polls since she won re-election last October, Mrs Kirchner sought earlier this year to unwind some of the costly subsidies in energy and public transport.
But fearing a backlash from her base she reversed course. So far this year spending on subsidies such as energy and transport is up 18 per cent, while pensions and social welfare spending is up 40 per cent.
But as the economy stutters and protests mount government officials have responded aggressively with the president’s supporters now openly agitating for a change in the law that would allow her to stand for a second re-election in 2015, currently outlawed under the constitution.
Recent days have seen a step up in official efforts to dissuade Argentines from buying dollars. “Argentines will have to get used to the idea of thinking in pesos,” said senator and Kirchner loyalist Aníbal Fernández.
But the senator became furious when a journalist asked him about his own savings in dollars, angrily responding: “What do you care? It is none of your business.”
Following such gaffes yesterday Mrs Kirchner said she would transfer her dollar assets into pesos and called on other officials to do the same. In her last filing with anti-corruption authorities the president declared $3.06 million in dollar assets.