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Martin Guzman, the new economy minister of Argentina. (Photo: Martin Guzman's Twitter account)
Wednesday, December 11, 2019
Perspectives

Argentina: New Lineup


Argentina’s President presents his new cabinet and economic team.

BY WALTER T. MOLANO

President Alberto Fernandez presented his new cabinet on Friday. Although the market had been rife with rumors ever since his surprise performance during the primaries (PASO) on August 11th, the final line up took people by surprise.

Like his predecessor, the new Chief Executive tried to reduce the power of the Ministry of the Economy by breaking the role into five different positions.

Matias Kulfas was named Development Minister. He will be responsible for the reactivation of the economy. He will work closely with Argentine industry, and particularly with the small and medium-sized enterprises (PYMES)—which are the backbone of the economy.

Daniel Arroyo
will be the Minister for Social Development. His mandate will be to design and monitor social assistance programs. Despite all of its fault, Argentina’s extensive social assistance networks are the main reason why the country did not explode into violence, as recently occurred in some of the neighboring countries.

Claudio Moroni will be Labor Minister. His mandate will be labor relations, a tricky role in Argentina given the power of its unions.

Luis Basterra will be Minister of Agriculture. This is another important role, given that agriculture is the country’s main export. He will have to deal with the expected tariffs that will be levied on the agricultural sector.

The titular role of Minister of the Economy went to Martin Guzman. He is the Columbia Business School professor, who gained prominence for his recent work on debt restructuring. His main objective will be the looming workout, but he will also have the final word in economic measures. Fernandez said that the new team was designed to combat hunger, in other words the economic crisis.

The new economic team clearly enhances the management style and role of the incoming president. To begin with, it is a very Peronist cabinet, highlighting labor and social issues. Second, by dividing the Ministry of the Economy into five positions, Fernandez clearly minimizes the importance of any single individual. This is something that Mauricio Macri tried to do when he took over, four years ago. It was also attempted by several other former Argentine presidents. They did it to avoid the creation of a super minister, who eclipses the president. Argentina has a strong presidential tradition, and chief executives are loath to share the limelight with anyone. The problem is that, given the fragility of the Argentine economy, the presidents usually reverse their decision and return to an all-powerful Economy Minister in order to centralize all decision-making into a single individual.

FRAGILITY: THREE FACTORS

The fragility of the Argentine economy is attributed to three major factors. The first is its enormous dependence on agriculture, a set of commodities with highly volatile prices that are subject to factors that are outside the government’s control, such as international demand and climatic variances. The second is weak fiscal institutions. Argentina’s taxing authority is poor, and the country is rife with tax evasion. At the same time, social expenditures are high. This creates a situation where the country is usually burdened with a large fiscal deficit and dependency on international capital—another volatile variable. The third factor is federalist structure. Argentina is a vast country, with a relatively small population. The central government has little control over the provinces, but it is the main source of financing for most of them. These fragilities are the main reason why the country is constantly enduring economic crises, and it is also why Argentine presidents are often forced to concentrate the economic roles into one individual.

The new economic team also confirms the primacy of President-elect Alberto Fernandez. He has close personal ties with all of them, reducing the role of Cristina Fernandez de Kirchner and the Campora. Her allies were given the minor roles of Minister of Public Health Insurance Agency (PAMI) and General Counsel for the Treasury.

It is clear that the two most powerful members of the economic team will be Guzman and Kulfas. Fernandez said that negotiations with the IMF had already started several weeks earlier. Given that Guzman hails from Columbia University, it is said that former World Bank Chief Economist, Nobel Laureate and Columbia University Professor Joseph Stiglitz is playing an important role in negotiating with Washington. His close ties with the Democrats could also be fortuitous if there is a change in the U.S. administration next year.

Guzman has said that he will try to finalize the restructuring in less than three months, in order to avert a hard-default on the foreign debt. The local-law debt will probably be restructured by decree. It is said that Guzman is shooting for a two year extension on all debt service in order to jump-start the economy. Hence, the negotiations with international creditors may be more amicable than what many people believe.

Walter Molano is head of research at BCP Securities and the author of In the Land of Silver: 200 Years of Argentine Political-Economic Development. 

 

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