Big investor selloff; huge currency decline against the US dollar; a reformist leader hemmed in by populist and corrupt rivals; the former president uses the head of state’s difficulties to launch their fightback; a resource-rich economy is trapped in negative sentiment and low growth and unemployment and poverty ticks upward.
If this looks depressingly familiar and sounds decidedly local, you would be both right and wrong. Correct, perhaps, as a description of SA today, but the above headlines describe the swirl of events churning across the South Atlantic, in Argentina.
We might have beaten the Pumas in back-to-back contests in the Rugby Championship, but when it comes to the political economy, the Argentinians beat us hands down in a race to the bottom. Even if a lot of the tag lines and sovereign tropes are eerily similar.
During my three-plus years representing SA in the land of the tango, the pampas and the birthplace of Evita, the living pope, the immortal Messi and the current queen of the Netherlands, I was continuously struck by the similarities between the two countries.
Separated by an ocean, and on the same latitude but so different in their histories and demographics, both are so alike in their connectivity: great people, brilliant braais (or asados), extraordinary natural riches cancelled out by terrible politics, burdened by history and trapped in the failures of the past, which both countries seem determined and doomed to repeat.
Cyril Ramaphosa is just commencing his first full presidential term and already the hype and hope of his self-proclaimed new dawn is fading fast. He had the mandate and the mindset apparently to launch SA on a path of sustainable economic recovery, but after three months of dithering and drift seems to be marooned in a Zumaesque trap of populist giveaways (debt write-offs, NHI, EWC, etc.) giving fright to the markets and the money men and women and almost ensuring our expulsion from global bond indices come November.
His Argentinian counterpart, Marucio Macri, is coming to the end of his first term of office as president, and is likely to be expelled next month by disenchanted voters from the famed Casa Rosada, the fabled presidential office in Buenos Aires (from where Madonna belted out Don’t Cry for Me Argentina in the 1996 movie Evita).
But the commencement of his presidency in 2015 started with the same hopeful notes struck by Ramaphosa here in May. Except for the distinguishing fact that Macri was elected from outside the Peronist party which had landed Argentina in the huge economic mess which Macri vowed to clean up.
His start appeared to be a triumphant endorsement of the political adage that “all presidents commence in office with political capital, and the wise ones spend it early as it diminishes quickly”. Macri, without the constraints of a divided party, although lacking a congressional majority, moved fast to return Argentina to economic normalcy, after years of political mayhem and financial profligacy by his predecessor, Cristina Fernandez de Kirchner.
In her eight years in office – following four years during which her husband, Nestor, who died in 2011, was at the helm – Cristina implemented the sort of policies which appear in the EFF manifesto. Both Kirchners ensured their country became an effective international economic outlaw. They expelled the IMF from the country, published discredited financial statistics, defaulted on its sovereign debt of $1,000bn, seized foreign companies without compensation, effectively banned most imports, and ran up the deficit and printed money after firing the independent-minded governor of the central bank.
Unsurprisingly, inflation soared into the stratosphere, but the fertile pampas, which produces most of the soy beans for China, saved the country’s bacon (far more than its cattle farmers who were forced to sell their famed beef at knockdown prices into the local market). This ruinous populism did play with voters at one level: the local peso might have been devalued but an artificial rate coupled with subsidies on electricity, gas and public transport and food, meant some short-term relief for consumers.
But the ever-rising prices of everything else, from clothes to property and most groceries, and the flight of investors and foreign capital, simply proved unsustainable, as Argentina’s debt levels soared and it could no longer borrow from international markets.
And at home, Kirchner practised extreme and divisive politics, setting one group (the working class) against the middle classes and the rich, while “she unleashed judicial warfare against her opponents, went after the press and allegedly engaged in obscene levels of corruption” (the apt description from Wall Street Journal Latin American specialist Mary Anastasia O’Grady).
It’s almost uncanny how closely the Jacob Zuma playbook copies Cristina’s – but, then again, democracy-disrespecting populist leaders have much in common.
After Argentinians tired of this diet of domestic disarray and international opprobrium, Macri’s election against Kirchner’s handpicked candidate (she was term limited) seemed in every respect a fresh chance for this sadly misgoverned country.
He allowed the currency to float, he settled with the international bond holders whom the Kirchners had given a massive “haircut”, he cut the ban on imports and ended the hated tariffs on exports.
But to finance his programmes and to offset a renewed crisis of confidence in the currency, Macri turned to the IMF, which under the Kirchners had become a handy enemy to explain away the country’s economic woes. Impressed by Macri’s reforming zeal, the fund granted Argentina its biggest loan yet and facility: a $57bn line of credit. But its terms required Macri to raise the price on utilities and transport and to trim the government budget and pull back on the increases granted to civil servants.
Cristina Kirchner meanwhile had been elected to the senate – not least because it provided her with a shield of immunity from the nine cases of corruption for which the now independent courts and prosecution services had indicted her.
And tapping into the reservoirs of support she still held and the deep vein of resentment which Macri’s reforms had engendered, she plotted her comeback. But Kirchner, ever the shrews operator, realised she repelled as many voters as she attracted. So she presented herself as the undercard on the Peronist presidential ticket for the 2019 election, ceding top place to her former cabinet secretary, the low-key and more emollient Alberto Fernandez.
Argentina has a unique political system: 10 weeks before the presidential elections scheduled for late October, all parties have to present their candidates in a national primary contest, for which voting is compulsory. So the national primary held on August 11 was a very accurate dry run for the first-round presidential poll on October 27.
Instead it was a blowout, and the Peronist team won by more than 14 points, suggesting that Macri had an almost impossible task to overcome in less than three months.
Macri’s response to his bitter defeat was not to double down on his path to economic reform but to borrow bits and pieces from his opponents’ discredited handbook: he introduced a short-term stimulus package of $740m, increasing grants to students and paying bonuses to government workers, and reintroducing subsidies. A sort of Peronist-lite menu offered by the market-friendly president.
Both the election result and his palliative measures shocked the markets: the Merval stock exchange crashed the day after the poll by 38%, the second-biggest drop yet recorded by a bourse anywhere in the world since 1950. The peso lost, in just five days, about 30% of its value against the dollar. Both recovered somewhat, but only after a massive intervention by the central bank, which raised the interest rate to an almost unimaginable 74%.
It is unknown at this stage whether Marci can stage an improbable comeback and in the event of his loss whether the new-old Peronist duo will be more orthodox than before and not go down the same blind alleys followed by Cristina marque 1. Both she and Fernandez are uncharacteristically low key and vague about their governing intentions.
Two international financial journals of repute are very downcast on troubled Argentina’s future trajectory.
For the conservative Wall Street Journal it is doom and gloom ahead: “Mr Fernandez has promised more populism and more power for the unions if elected. Argentines appear to be handing Peronism the rope with which it will hang them.”
The more liberally minded Financial Times is almost as negative: “Argentina’s unhappy cycle is of populism, followed by austerity, followed by more populism. It urgently needs a national consensus around a sustainable economic policy.”
His answer has a following echo here at home: “It is almost impossible, in just four years, to undo decades of bad governance. And no one has yet figured out how to do the painful reforms and still get re-elected.”
Wise and chilling words, for both countries on either side of the South Atlantic Ocean.
Leon, a former leader of the opposition, now chairs Resolve Communications.
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