Argentina. Articulo de The Economist. Argentina under the Kirchners. Socialism for foes, capitalism for friends. While some private businesses in Argentina have faced harassment or even nationalisation, others have flourished thanks to political contacts. From The Economist print edition.
Domingo, 28 de febrero de 2010 por Prof. Dr. Ricardo Petrissans Aguilar
WHEN Néstor Kirchner took over as Argentina’s president in 2003, his country’s economy was already on the mend after a sickening collapse 18 months earlier that had prompted debt default and devaluation. Lambasting the IMF and privatisation, Mr Kirchner extended the state’s control over the economy. Rising world prices for Argentina’s farm-commodity exports and government pump-priming unleashed an economic boom. This made Mr Kirchner a popular hero, and secured the election of his wife, Cristina Fernández de Kirchner, as his successor in 2007. She has continued his policies. Mr Kirchner was last year elected as a congressman, but according to former officials he still takes many executive decisions.
Enjoying almost complete political dominance, Argentina’s first couple swatted away critics who accused them of everything from illegal enrichment to wrecking institutions. They are still trying to do so. Ms Fernández frequently accuses Argentina’s leading newspapers of making up stories to discredit her government. But it is getting harder. Thanks to the world recession, rising inflation and a series of political errors, her approval rating in opinion polls has fallen to 20%. After losing a working majority in a congressional election last year, the government is on the verge of losing control of key committees of Congress as well.
Yet this is no ordinary slump of the type familiar to long-serving governments in other democracies. Four of the president’s private secretaries are being investigated for enriching themselves illegally. Two, Julio Daniel Álvarez and Fabián Gutiérrez, recently resigned. Meanwhile Mr Kirchner has been criticised for a transaction in October 2008 in which he swapped pesos for $2m shortly before the value of the currency fell sharply. He says this was to buy a stake in a hotel company that was priced in dollars and insists that he was not speculating against the peso. However, the Kirchners admit that their personal wealth has increased dramatically while they have been in office.
“Governability”, Mr Kirchner said at his inauguration in 2003, “cannot be a synonym for impunity…obscure agreements, the political manipulation of institutions, or spurious pacts behind society’s back.” In power, the Kirchners have frequently belied those fine words. They have bullied institutions that have got in their way, from the judiciary to the Central Bank. They have used the power of the state to harass groups they see as hostile, from farmers to utility companies. Meanwhile, some of their allies have thrived.
The Santa Cruz connection
Both the Kirchners are from the left wing of the dominant Peronist movement. Both claim to have been active in the resistance to Argentina’s military government. Mr Kirchner, the child of parents of Swiss and Croatian stock, forged his political career in his home province of Santa Cruz, in far-off Patagonia. He was its governor from 1991 until he moved into the Casa Rosada, the presidential palace. Rafael Flores, a former Peronist congressman who represented the province for 12 years, says that Mr Kirchner transferred his way of operating and his economic philosophy from the province to the national stage. “In Santa Cruz,” says Mr Flores, “Kirchner behaved in all the ways he would when he became bigger in the country: manipulation, pressurising mayors, persecuting people who didn’t agree with him.”
Mr Kirchner rarely talks to reporters. When president, he gave no press conferences. Neither he nor Ms Fernández has responded to The Economist’s requests for interviews. So we do not have their answer to such criticisms.
Santa Cruz is remote and sparsely populated, but rich in oil and gas. As governor, Mr Kirchner ploughed hydrocarbons revenues into public-sector jobs and infrastructure projects. Oil and gas companies needed his administration’s approval to get exploration contracts. The Kirchners developed a tight network of trusted friends in Santa Cruz, several of whom followed them to Buenos Aires (where they were dubbed “the penguins”). Mr Kirchner’s sister, Alicia, is the minister for social development. Another aide from Santa Cruz is Julio de Vido, an architect who was introduced to the Kirchners in the 1980s. He served as the province’s economy minister when Mr Kirchner was governor. Since 2003 he has been Argentina’s minister of planning, in charge of a vast bureaucratic empire that spans public works, transport, communications, energy and mining. Mr Kirchner also appointed Mr de Vido’s wife to a senior post in the government’s internal-audit agency.
Mr Kirchner’s governorship is remembered for something else too: the mystery surrounding some $600m in financial assets belonging to the province. (A former official in a previous national government who has investigated the matter thinks the true figure was closer to $1 billion.) In 1999 the province sold, at a big profit, shares in YPF, the privatised national oil company, which it had received in 1993 in lieu of unpaid royalties. It held the proceeds abroad. The provincial government said that the interest was invested in public works. Opponents of the Kirchners in Santa Cruz accept that some of this money has returned to the province. Mr Kirchner has never explained what happened to the rest.
Penguins in Buenos Aires
On becoming president Mr Kirchner struck up a friendship with Hugo Chávez, but the first couple’s approach to the private sector has been a bit more subtle than that of their Venezuelan counterpart. They have nationalised, but sparingly. The government has taken over the troubled national airline and the private pension system, and also set up several new state companies. Meanwhile, some private businesses have faced regulation to the point of harassment.
The Kirchners retained an economic emergency law that, among other things, allows the government to change the contracts under which privatised utilities provide services. It was passed as a temporary measure after the peso devaluation of 2002. Regulators, previously independent, have been turned into rubber stamps. Now it is the government that sets utility prices. The method often involves phone calls from the offices of Mr de Vido or Guillermo Moreno, the secretary of commerce. The freezing of the retail price of natural gas has discouraged investment in exploration. The price of beef has been held down by adding a high export tax, encouraging farmers to sell in the domestic market. Farmers are now able to export only at the government’s discretion.
Despite these price controls, both formal and informal, Argentina suffers from high inflation. In 2007 Mr Moreno’s team changed the way the consumer-price index was measured by the National Statistics and Census Institute (INDEC). This had the effect of keeping the official inflation figure in single digits. Private estimates are much higher (see chart). The credibility of the official figures took a further knock this month when union leaders sympathetic to the Kirchners called for wage rises of 25% to make up for inflation. The lower official number has meant the government has made a net saving on its inflation-linked bonds of $1.7 billion, according to a former finance official.
The government also gets involved in private business dealings that should be beyond its remit. Two examples stand out. The first involves Shell which, during 2004, had talked to Brazil’s Petrobras about selling its assets in Argentina and Brazil. The company changed its mind after details of these talks leaked. Shortly afterwards it raised prices at its petrol stations in Argentina. In response Mr Kirchner urged Argentines not to buy “even a can of oil” from the company. Mr Moreno’s office then fined Shell 23 times in 2006 for undersupplying the market. According to Juan José Aranguren, the company’s head in Argentina, Shell was providing 8% more petrol than the year before, a bigger increase than the market average.
Mr Aranguren faced 57 arrest warrants in 2007, again for allegedly undersupplying the market, each carrying a prison term of between six months and four years. All of them are still in the courts. Next the government ordered Shell to shut down a refinery for alleged environmental violations, allowing it to reopen without explanation five days later. At the same time, other people in the administration were offering Shell opportunities to sell its Argentine assets, says Mr Aranguren.
The second example of government interference involves the Clarín Group, Argentina’s most powerful media business. In September last year, 200 tax inspectors descended on the group’s offices. No one seemed to know who sent them. The tax agency’s boss denied ordering the inspection. The government accused its opponents of organising the raid to make it look bad. The group’s daily newspaper, Clarín, and its television stations have been fierce critics of Ms Fernández’s government. The taxmen arrived as Argentina’s Congress prepared to debate a new media law that will force Clarín to sell many of its radio and television interests.
There is a case for regulating media ownership in Argentina, and Clarín’s market dominance would be considered unacceptable in some countries. But the main effect of the new law is to weaken the president’s chief critic in the media. This blow against the Clarín Group followed another. In August the Argentine football confederation broke a contract with Clarín for the transmission of live league matches, and signed a new one with the state channel. Clarín alleges that Mr Kirchner was behind the switch.
The pension-fund piggy bank
State control of Argentina’s private sector has been tightened further since the nationalisation of the private pension funds in December 2008. Because the funds had big shareholdings in many of Argentina’s companies, the government, in the form of the National Social Security Administration (ANSES), now has the right to nominate directors to the boards of these firms, a prerogative it has exercised by placing directors at around 20 companies. ANSES performs another function, too. With the economy slowing ahead of the congressional election in June last year, Ms Fernández ramped up spending on public works and the unemployed, treating the pension system as a piggy bank. Local economists estimate that the central government’s accounts last year went into the red for the first time since 2002. The pension system is one of its main creditors.
The Central Bank, which in theory is independent, has also been brought within the president’s direct control. In December the government floated the idea of creating a “Bicentennial Fund” with the aim of using the bank’s hard-currency reserves to pay off a group of foreign bondholders who rejected a debt restructuring in 2005, thereby restoring the government’s access to international financial markets. Martín Redrado, the bank’s governor, demurred, arguing that in an economy like Argentina’s, where many people think in dollars because of past hyperinflation, the reserves were an important cushion against swings in foreign-exchange markets. He was also advised that the transfer might make funds held by the Central Bank abroad vulnerable to claims by creditors.
Thwarted by Mr Redrado, Ms Fernández decided to sack him. Mr Redrado dug his heels in, insisting that only Congress could remove him. A judge who ruled in Mr Redrado’s favour in the dispute, María José Sarmiento, found the police on her doorstep on January 9th. If that was too subtle, the president’s chief of staff, Aníbal Fernández (who is not related to the president), told reporters that the judge’s every movement was being watched. Eventually the president got her way and Mr Redrado was replaced with a more pliant figure.
Not everyone is treated so harshly. Indeed, a few businessmen who enjoy good relations with the Kirchners have done well in recent years. They are known in Argentina as the empresarios K. One is Lázaro Báez, whose firm, Austral Construcciones, began life as a small builder in Santa Cruz and has since diversified into oil exploration and farming. Much of the company’s business has been in public-works projects in Santa Cruz. Mr Báez was also awarded oil-exploration rights in Santa Cruz.
Shell was punished for refusing to co-operate
It was Mr Báez’s company, Epsur, which together with Enarsa, a state company, offered to buy Shell’s assets in Argentina in 2007. He has described his relationship with Néstor Kirchner as one of “platonic love.” Their affair goes back to the early 1990s, when Mr Báez worked as a manager in Banco Santa Cruz, a bank privatised by Mr Kirchner when he was governor.
Another friend is Cristóbal López, who controls a company called Casino Club and operates casinos and gambling halls throughout Argentina, including one at the Palermo racecourse. Shortly before leaving office, Mr Kirchner issued a decree extending Mr López’s licence to run the slot machines at the racecourse until 2032 and raising their number by 50%.
Enrique Eskenazi, a grandee of the private sector and the controlling shareholder in Banco Santa Cruz, argues that politics and business are so closely linked in Argentina because the country lacks the institutions that ought to separate them. In 2007 his company, Grupo Petersen, bought a 14.9% stake in YPF from Spain’s Repsol, which wanted a well-connected local partner for its troubled investment. So keen was Repsol to get Mr Eskenazi on board that it lent him more than $1 billion to buy the stake. He rejects any suggestion that Grupo Petersen’s success stems from his political connections. “Under President Alfonsín, people called us Alfonsinistas; under President Menem, we were Menemistas. Under the Kirchners, we’re Kirchneristas. We’re used to it.” In Argentina, he says, any success is viewed as suspicious, unless it is won on the football pitch.
Maybe so. But the Kirchners have left their country with weaker institutions, and an economy in which the state plays a much bigger role and in which political contacts often seem to make the difference between business success and failure. Mr Kirchner has hinted that he will run for president again in 2011. By then Argentines may want to see the back of him.