Kirchners' Argentina

Dear Reader,

This week I am writing about a very special couple, President Christina Frenández de Kirchner and ex-Predident Néstor Kirchner. She is Argentina’s president since December 2007, when she took over from her husband. Back then she enjoyed massive support, however today her popularity stands at only 30%. She has not only managed to destroy her popular support but also the once booming economy.

Argentina defaulted on their sovereign debt in 2001, in what is the largest default ever. The peso was before the crisis pegged to the US dollar at 1 peso = US$1, now it costs over 3 pesos to buy a dollar. Thankfully the Argentine economy recovered very quickly, much thanks to the soft commodities’ boom. Néstor Kirchner imposed high export tariffs on commodities exported from Argentina in order to get the state budget on track again. Whilst he managed to sort out the economy he did not settle with the holders of the defaulted bonds. This means Argentina can still not tap international debt markets for funding.

Mr Kirchner did however manage to issue new bonds domestically which paid a variable coupon calculated upon inflation. When servicing these bonds became expensive and public pressure at home to bring down inflation he fired the head of the government agency in charge of measuring inflation. He replaced the old head with a person with ‘better’ understanding of economy. In reality the new person only changed the weightings of the products making up the inflation calculations, as to include more products put under government price controls. This obviously lowered the inflation dramatically. For the last couple of years it has lingered around 1.5%, unofficial figures points more to the mid- to high teens.

Christina’s mismanagement of Argentineans trust is even more stellar. Last year she tried to push through a rise in export tariffs on soybeans – already standing at 35%. Only after a public outcry with massive demonstrations and her own vice president voting against her in the senate’s vote of the bill did she drop the proposal. This year she has pushed up the federal elections from October to June, citing the economical downturn as the reason. Her husband and ex-President, Mr Kirchner, passed a law in 2004 that all federal elections has to be held on the fourth Sunday of October, as to avoid any future incumbent leader to hold elections at their will.

The list of the Kirchners’ use of power for their own good is much longer than only these episodes. However how do they manage to do it?

Firstly one has to look at the media coverage. Outside Argentina we only read occasional news about the country and its politicians. Apart from the Economist and some Spanish speaking news magazines no one highlights the flagrant misuse of power the Kirchners commits. The Economist does not present an objective view, but it informs its readers of its stance over the Kirchners. The Economist strongly dislikes them. However they use accurate facts allowing the reader to critically evaluate the magazines view (see for instance The Kirchners make a dash for it, The Economist).

Bloomberg also covers Argentina but in a more objective way. Their articles are more factual and usually try to present both sides to a story. That is way I was so surprised to read an article this week which had clear anti Christina view expressed between the lines (see Argentina Downgraded to Kazakhstan on Foreign Fund Restrictions). This article will also be published in Bloomberg’s monthly magazine. I personally dislike Christina, but I still think it is important Bloomberg maintain its objective view. The exhaustive article explains how Argentina got into the mess it now finds itself in. It is highly recommendable reading for anyone wanting to understand the country’s current problems, despite the slightly subjective view of the journalist.

In Argentina itself most newspapers are pro government. Papers like El Nacional do publish some news not favouring the government. Sadly it still prefers to publish government tampered inflation figures than questioning way independent observers argue inflation is much higher than official figures. To one extent it is understandable way the Argentinean newspapers cannot criticise Kirchner. The president never holds press conferences. Since she took office she has never held a press conference. Her husband only held one during his five years in office, and that was held abroad not allowing the domestic papers a chance to attend. Instead Christina holds long speeches only allowing papers to cite her from self composed speeches, rather than to responses to questions made by a reporter. She holds her speeches without notes and they can be very long. It has even happened senators fall asleep during them. Something also happening to her buddy Hugo Chávez.

All the best,

Fede