The currency exchange controls had practically frozen the real estate market in Buenos Aires City

Buenos Aires Herald

By: Martín Gambarotta

Out of dollars? Five officials have a plan

Argentina, like Australia, is the land down under. But Argentina, as V.S. Naipaul once wrote, is also the land made for plunder. Voilà: you live down under in the land of plunder. There’s nothing new about this. Old V.S. said as much way back when. But it’s good to keep that impression in mind as you navigate the news of the day. There are, after all, new suspicions of plundering. The public works tycoon Lázaro Báez, who amassed a fortune in the Patagonian province of Santa Cruz that was ruled in the nineties by the late former president Néstor Kirchner, has been charged with money-laundering. Báez and five others, including his son, are under investigation — meaning that they have not been indicted. Yet already things are happening. On Friday, the head of the state-run energy company ENARSA, Exequiel Espinosa, quit amid allegations that he was connected to Báez’s dealings. Espinosa’s resignation is possibly linked to the Báez case. But the outgoing head of ENARSA, a company involved in the bulk import of fuel by Argentina, is also very much an old school Kirchnerite linked to the Federal Planning Minister Julio De Vido. The administration of President Cristina Fernández de Kirchner is now packed with young officials, many members of the youth group La Cámpora, who are out to change things. Maybe Espinosa’s resignation is about the younger Kirchnerites gaining ground in the administration.

Even with the money-laundering allegations in the news, and the spectacular stories ventilated on private television about Kirchnerite officials purportedly hoarding bags full of cash in and out of Kirchner’s office, there are other matters of concern. For Argentina is not only about sleaze. It is also a land full of experimental economists.

The critics will tell you that there are many things wrong with the economy: underreported inflation, strict currency exchange controls, a black market dollar and high export duties. The black market dollar is making negative headlines that can no longer go unnoticed. A dollar is officially worth about 5.20 pesos. But because of the currency controls introduced in November 2011 and since then tightened, a dollar in the black market was going for 10.45 pesos on Wednesday.

The black market dollar, like Argentina’s problems with plunder, are nothing new. Since the start of the year Fernández de Kirchner had held a number of meetings with her “economic team”: Economy Minister Hernán Lorenzino, Deputy Economy Minister Axel Kicillof, Domestic Trade Secretary Guillermo Moreno, Central Bank Governor Mercedes Marcó del Pont and AFIP tax bureau chief Ricardo Echegaray. The difference between the official dollar and the black market dollar has increased consistently. But the national government had kept mostly mum about the situation. Then on Monday Fernández de Kirchner declared that her government was under pressure to drastically devalue the peso. Devaluation, she said, is not going to happen. “To devalue, you will have to wait for another government,” CFK said.

That was not all. On Tuesday, the five members of the President’s “economic team” called a press conference. Lorenzino, Kicillof, Moreno, Marcó del Pont and Echegaray announced on Tuesday a sweeping tax amnesty for undeclared dollar deposits, in the form of a bill that has been submitted to Congress for swift approval by the Kirchnerite Victory Front coalition that controls it.

The new tax amnesty (an opportunity to whitewash dollars) includes a certificate, Cedin, to deposit dollars in the Central Bank to then purchase properties or undertake construction projects. The buyer of a property will pay with the Cedin certificate that the seller can then cash in the Central Bank for dollars, according to the official story trumpeted on Tuesday. It’s quasi money that can eventually translate into dollars filling people’s pockets once again.

The currency exchange controls had practically frozen the real estate market in Buenos Aires City where properties have traditionally been priced in dollars. Real estate transactions in the first quarter of this year dropped 41 percent in Buenos Aires City. The Cedin certificate is designed to rescue the local real estate market from oblivion and the national government seems to be admitting that it lost the battle for properties to carry price tags in pesos.

An energy bond in dollars, paying an annual interest rate of four percent and maturing in 2016, is also part of the amnesty menu (along with a third bond). No questions will be asked, Echegaray said. But Echegaray added that those suspected of tax evasion, like Báez and members of the opposition media group Clarín, will not be allowed to take part in the amnesty.

The Famous Five took difficult questions during the press conference on Tuesday. Moreno insisted that the inflation rate is the official one as measured by the state-run statistics bureau INDEC. Kicillof, a Keynesian economic doctor in his forties trained at the University of Buenos Aires, estimated that Argentines have 40 billion dollars under the mattress at home and a total of 200 billion dollars counting funds stashed abroad.

The plan, the Famous Five said, is about issuing “transparent instruments for undeclared assets.” Kicillof said there is nothing substantially wrong with the Argentine economy, especially when compared to the dire situation in Europe. He complained about bank runs and operations with black market dollars to ruin Argentina. He spent a lot of time on Tuesday, and again in the Senate on Thursday, explaining that a drastic devaluation overnight (like the one decreed by the Peronist administration in 1975) would lead to disaster and ruin the purchasing power of the working classes.

Doctor Kicillof could be right. Doctor Kicillof could be wrong. But Naipaul’s Argentina is used to catastrophic economic crashes and such an event has not happened just yet in the Kirchnerite era. Massive anti-government demonstrations have been staged recently against the sweeping reform of the justice system sponsored by Fernández de Kirchner and the economic measures. But unemployment is low and the chugging economy has not blown its engine just yet, even when growth is sluggish at best and there are loud cracking noises (like a five-day strike by long-distance bus drivers for better pay).

There was a pleasant whiff of spring to the massive nationwide demonstrations. But there was also some unsavoury stuff going on under the surface. During the protests in April a small group of protesters tried to storm Congress. When activists of the centre-right party PRO tried to stop them they were showered with homophobic abuse and called “Kirchnerites.”

The reform of the Magistrates Council was passed into law on Wednesday by the Senate 38-30. A demonstration was staged outside. The protest was called by political opposition groups this time and not by wildcat demonstrators. The anti-government protests have raged. But now getting ready to answer back are the Kirchnerites, who are planning to march on Plaza de Mayo on May 25 to mark the 10th anniversary of Kirchner’s inauguration as president in 2003.

The dollar whitewash is also an effort by the CFK administration to deal with the criticism that has been hurled upon its management of the court system and the economy. Kirchnerite officials rarely do a lot of talking. But the Famous Five now clearly have been allowed by the President to explain their policies to the public. They took difficult questions. They argued loudly with opposition senators during a plenary meeting of Upper House committees on Thursday.

There’s a lot of talk of CFK’s supremacy verging on dictatorship. But others argue that the President is only making use of a parliamentary majority bestowed upon her by her landslide victory in the presidential elections of 2011. The Kirchnerites did not enjoy such supremacy when they lost the midterm elections in 2009 in Buenos Aires province. Parliamentary majorities come and go. Midterm elections have been formally called for October 27. All political parties will hold open primaries on August 11. The Victory Front will lose its parliamentary majority if it does not perform well. It will boost its might if it performs relatively well because it only has to improve on the dire result of 2009 to win more seats.

The President has used the parliamentary majority to limit court injunctions in cases involving the state and to promote the partisan election of Magistrates Council members. A Kirchnerite lawmaker on Thursday unveiled a bill for the state to seize the newsprint company Papel Prensa, which is currently controlled by the anti-government media group Clarín and the conservative daily La Nación.

Such drastic reforms, say many, make Argentina look more and more like socialist Venezuela. Nicolás Maduro, Venezuela’s new Bolivarian president, was on a regional tour that included a stop in Argentina (and a meeting with CFK) on Wednesday. Maduro only just won the elections in Venezuela and the result is still being challenged by the opposition candidate, Henrique Capriles. But Maduro’s tour of Uruguay, Argentina and Brazil shows that he has the support of its main regional neighbours. Maduro headed a militant rally of Kirchnerite activists at the All Boys soccer club stadium in Buenos Aires during his visit.

Argentina’s atomized opposition, like in Venezuela before Capriles, has a lot of engineering to do if it is going to defeat the Victory Front. All eyes are currently on Sergio Massa, the Peronist mayor of Tigre (a northern district in Greater Buenos Aires). Massa, who served briefly as cabinet chief to Fernández de Kirchner, performs well in polls and is still technically a Kirchnerite. Many observers think that this year’s election outlook will change if Massa decides to run in October either for or against the national government.

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