The next government will be required to save the country from recession.
At the general elections this coming October, Argentina will choose its leaders for the next four years: the president, 22 of its 24 provincial governors and almost all the mayors and councils of the country’s more than 5,000 municipalities. The elections will furthermore renew half of the Chamber of Deputies and one-third of the national Senate.
The current Peronist administration led by President Cristina Fernández de Kirchner is heading into the elections plagued by a number of problems. This grouping has been governing uninterrupted for 14 years and for two-thirds of the time since democracy was reinstated in Argentina in 1983.
However, Kirchner’s coalition has seen some of its political capital diminish as witnessed a year ago when one in three Argentinian voters opted for the opposition parties at the midterm legislative elections of October 2013.
In fact, despite record tax revenues of over 35% of its GDP in 2014, nearly twice the average in Latin America, Argentina’s budget deficit was over 5% of GDP, compared to 1% in neighbouring Chile and Colombia and just over 3% in Brazil. This deficit is caused by rampant government expenditure, growing faster than inflation. It represented approximately 40% of Argentina’s GDP last year and was primarily attributable to government subsidies for energy and wages. Nearly 22% of the Argentinian workforce is employed by the public sector. Only five countries in the Organization for Security and Operation in Europe (OSCE) exceed that – the four Scandinavian nations and France – whereas in Chile, only one worker in ten is a state employee. Official figures (which are disputed) show that the public sector has seen a 21% rise in employment since Presidenta Kirchner took office in 2007, compared to an 8% increase in private sector jobs.
Argentina’s foreign trade balance was also disappointing in 2014 with both imports and exports dropping by more than 10%. The widespread decline in imports, a government policy introduced to relieve strains in the export sector, does not however include energy imports, which last year cost the country over 112 billion Argentine pesos (€11.2 bn) as a consequence of extravagant, generalised subsidies for energy consumption.
On the other hand, the drop in exports is attributed to a loss of competitiveness: the exchange rate slipped with respect to inflation. It fell to about 40% less than the average rate recorded when the previous president, Néstor Kirchner (Cristina’s husband), was in power. The inconsistent access to supplies of imported products due to quantitative restrictions played a role as well as the economic slowdown experienced by Argentina’s trade partners, Brazil first and foremost.
Overall, at the end of her mandate, President Cristina Fernández de Kirchner will leave behind a poorer county. According to official data, which the International Monetary Fund (IMF) has criticised as being of poor quality, per capita income is set to fall below levels recorded in 2011 when she captured 54% of the vote to secure re-election for a second term. In order to discard the label of worst performing economy out of the 19 nations in the Latin American region, Argentina will have to pull itself out of recession and regain the two percentage points of GDP it lost last year.
Contrary to claims by Kirchner’s administration, an adverse international scenario is not to blame for the poor results. This is proven by the fact that on the basis of its projected economic performance from 2012 to 2015, Argentina lies in 142th place out of 153 developing countries.
Yet, it was actually thanks to historically favourable international circumstances that Argentina was able to accumulate a trade surplus of nearly 1.4 trillion pesos (roughly €138 bn) from 2003 to 2014. That is three times the investment required to develop Vaca Muerta, the world’s second-largest reserve of unconventional hydrocarbons. But, in spite of this, one in four citizens and two households out of ten live below the poverty line in Argentina today.
Most analysts believe Argentinians will have to choose between continuity and change at the October vote. And according to all the opinion polls, the candidates of the current ruling party can only hope to form the leading minority party. The other political groups are therefore discussing possible pre-election deals to avoid the fragmentation of the last presidential elections when Kirchner outperformed the runner-up candidate by nearly 40 points.
If the opposition parties do manage to create one or more blocs, the 2015 elections could signal an historic turning point. It could result in the need for a second ballot to elect the new president – which would be a first for Argentina – as none of the candidates currently seems to have the necessary numbers to win the initial round of voting.
Ten months away from this year’s decisive elections, Argentinians are certain of only one thing: this government will not introduce the economic measures needed to pull the country out of recession, fight inflation and reduce unemployment.
The next government will be required to save the country from recession.
