The Alberto Fernández Administration at Two Months

Two months have passed since Alberto Fernández assumed the Argentine presidency on December 10, 2019. This transition back to a broad Peronist coalition marked a significant change of course after the four-year administration of center-right leader Mauricio Macri. The president faces an overall economic picture that raises serious concerns as the country looks forward in 2020. Final GDP figures for 2019 show a 3 percent decline, and 2020 projections estimate a contraction that could be over 4 percent. Unemployment remains close to 10 percent. Inflation, which reached over 53 percent in 2019, is expected to decline but is still expected to be over 40 percent this year.

Within days of taking office, Alberto Fernández confirmed that his top priority was to make urgent decisions required to stabilize the economy and to lay the basis for growth. By December 21, he was able to push the Economic Emergency Law, which gives him a broad range of powers normally exercised by the Argentine National Congress, through both houses of the legislature. On the basis of these extraordinary presidential powers, Fernández has begun to take decisions that demonstrate a strong commitment to fiscal balance and responsible monetary policy.

The most important economic policy decisions so far have included: (1) increased export taxes on key agricultural commodities, (2) a 30 percent tax on foreign exchange purchases including travel expenses (this effectively has set up a two-tiered exchange rate aimed at protecting the country’s scarce foreign currency reserves), (3) the freezing of utility prices for six months, (4) double indemnification for those laid off or fired from employment for a period of six months, (5) an 180-day freeze on automatic adjustments to pensions and social security payments (the measure with the most significant fiscal impact given that pensions make up more than 50 percent of the federal budget), (6) payment of special year-end “bonuses” for those receiving the lowest salaries and pensions, (7) higher income and asset taxes on those earning and owning the most, and (8) limited payment on debt due, with initial indications that Fernández wants to be able to honor all pending debt and avoid default while reprograming the schedule of payments for at least several years until the country begins to grow again.

Debt Renegotiation

The issue of the Argentine government’s ability and plans to repay its $300 billion debt has dominated the first two months of the new president’s term. Early indications in December that Fernández intended to repay the debt in full, though on an extended payment schedule and only after Argentine economy begins to grow, sent Argentine bonds rising significantly in value. However, the markets were shaken by a bold (some would say misguided) and ultimately unsuccessful effort by the governor of the province of Buenos Aires to delay payments on principal of a provincial bond due in January. After weeks of mixed signals from the federal and provincial governments, the province made good on its payments due at the final hour. This move led the president to warn holders of federal debt that he would not do the same in case renegotiations between the federal government and the bondholders fail to reach an accord. The president and Minister of Economy Martín Guzmán have made it clear they want renegotiations with private debt holders completed by the end of March. The expectation is already high that bondholders will need to take a serious cut in either or both of the debt’s principal and interest rates.

Public positioning and discussion of the country’s almost $50 billion debt to the IMF has taken a separate track, with the president expecting early progress in negotiations with the IMF. Guzmán met with the IMF negotiating team in New York in late January, and he met with the new IMF managing director Kristalina Georgieva at a conference in Vatican City on February 5. The official IMF negotiating team is expected to make its first visit to Argentina in mid-February.

Political Power Struggle

Beyond the immediate challenges of debt renegotiations, taming inflation, and promoting growth, President Fernández faces a continuing internal power struggle within his own Peronist coalition. His vice president, former president Cristina Fernández de Kirchner, was the one who in May 2019 decided that an electoral ticket headed up by a less controversial figure like Alberto Fernández, instead of by herself, had a much better chance of defeating the incumbent, President Macri. The outcome in the December elections clearly proved her judgement to be a correct one. Vice President Kirchner has sent clear signals that she intends to preserve this political capital, though she has been careful to avoid openly undercutting the president’s authority. Her own loyalists have been placed in a broad range of senior positions in the government, including those of the ministers of security, interior, defense, and the tax authority, among others. In many other federal ministries and agencies, Kirchner loyalists have been appointed to the second level of authority as a means of power balance.

Argentina’s Foreign Policy

The president spent much of his first two months focused on establishing personal relationships with key foreign leaders in large part to build support for what he knows will be difficult negotiations with bondholders and with the IMF. His first foreign visit was to Israel for the 75th anniversary of the Holocaust, and he spent time there meeting other world leaders in attendance, including French president Macron, Israeli prime minister Netanyahu, and Russian president Putin. He then did a whirlwind European tour that took him to Rome, the Vatican, Berlin, Madrid, and Paris for discussions that included direct requests for support in Argentina’s debt renegotiations. Even Pope Francis argued for a socially responsible and sustainable approach to Argentina’s heavy debt burden. In a post-visit interview, President Fernández was optimistic that his message on debt sustainability to European leaders and to the Pope would have its desired impact on debt renegotiations.

President Fernández’s relationship with President Trump remains mostly an unknown for the time being, as the two leaders have so far only spoken briefly by phone. A Fernández visit to Washington could take place at some early point in the next few months. However, signals from other senior U.S. government officials have been mixed so far in part due to an unclear position by Argentina on the legitimacy of Venezuela’s dictator Nicolás Maduro and its continuing support for ousted Bolivian president Evo Morales. Argentina’s new ambassador to the United States, Jorge Argüello, presented his diplomatic credentials to President Trump in the Oval Office on February 6, and the press reported that Trump made supportive statements on Argentina’s efforts to get its economy growing again and to renegotiate its debt. President Fernández sent a strong message with his early nomination of Argüello as ambassador. Argüello, who has already served as Argentina’s ambassador to the United States and to the United Nations, is a close friend and ally of President Fernández and is an advocate of a strong bilateral link with Washington.

The Bottom Line

While Argentina’s new president has managed to stabilize key economic indicators, he faces a very complicated agenda as the Argentine summer comes to an end. The government in March will face annual negotiations with labor unions for salary increases and demands for adjustments in pension payments that have been frozen until March 31. These demands will certainly be for strong increases, as inflation is expected to remain high. The president has signaled his intention to break the automatic indexation of wages and pensions with inflation as the only way of breaking this vicious circle, but social patience will not hold for long. Debt renegotiations with the threat of a new default will be taking place at the same time, leaving an extremely complex combination of challenges for the new administration. While some of President Fernández’s new relationships in the halls of power will help, the final outcome will depend on much more than this. There is increasing talk in Argentina of the “calm before the storm.”

Michael A. Matera is a senior fellow and director of the Americas Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

© 2020 by the Center for Strategic and International Studies. All rights reserved.

Michael A. Matera