“Argentina will save itself from default, but it will become the new Hong Kong. There will be a violent social rebellion, which will anticipate by a few years what will happen in Italy and what has already happened in France with the yellow vests". The forecasts of Giulio Sapelli, former professor of economic history at the University of Milan and a great expert on Latin America, are not rosy, but they do not only concern the financial aspects that are being talked about so much these days, after the defeat of the liberal president Mauricio Macri in the primaries which caused the stock market and weight to collapse, in a country with inflation over 50%, GDP decreasing by 3% and the poverty rate now rising to 35%: "The crisis in Buenos Aires is also the fault of the IMF and the World Bank and the population will identify them as enemies. However, the theme is above all social: the return to the illusion of Peronism will unleash the revolt of the penultimate”.
Professor, the Macri cure seems to have failed miserably.
“Macri has managed to dissatisfy both his supporters, i.e. the country's elite, and the most disadvantaged groups. In fact, what I call 'dollarized' social classes is comfortable with inflation remaining high, but he had promised to bring it down and in part he had even succeeded. Inflation, however still high, has instead clearly penalized the poorest classes: the percentage of the population below the poverty line, according to some estimates, has even risen to 40%”.
This despite the famous monster loan of 56 billion obtained by the IMF, the largest loan in history.
“Another huge mistake. It would have been enough for him to see the European experiences with loans from the International Monetary Fund, starting with Greece. The funding has forced him to apply policies of cuts in public spending that have hit the weakest, the retired, the lowest wages. Above all, it has unfortunately cut subsidies on public services: transport, electricity, gas, water, the costs of which for users have increased exponentially with the last government. For Argentines, rich or poor, the recognition of those low-cost services was considered an untouchable right. Macri has shown that he does not know his own country: it would not have cost him much to maintain that expense, and he would probably have won the elections ”.
Instead, the Peronist candidate Alberto Fernandez, heir to Cristina Kirchner (who this time is running for vice president), won hands down. So is that of the Argentines with the myth of Peron a honeymoon destined to continue?
“The Peronists also won in Buenos Aires, Macri's fiefdom, and in some provinces historically of different orientations such as Santa Fé, where Cristina Kirchner's party had never touched the ball. Usually whoever conquers the province of Buenos Aires is inevitably destined to win politics: this is why Macri has no chance of recovering. But the interesting fact is that for the first time since Peron, Peronism is regrouping. It has always been difficult to frame him, even to say if he is right or left, due to the various declinations he has had in history, but Fernandez has an interesting profile. He proposes a moderate Peronism: in October he will win and sanction both the demise of Macri and that of Cristina”.
However, she is still very popular: her autobiography is the best-selling book of the year in Argentina.
“A scary book, full of inaccuracies, but actually widely read. This demonstrates two things: that Argentines read more than Europeans (such a literary phenomenon would be unthinkable in Italy) and that the myth of Peron and Evita, of which Cristina is considered by some to be the reincarnation, is still alive. It is something magical, which should be studied by anthropologists more than by economists. Argentine culture is still strongly linked to this 'magic': Cristina will be surpassed, but her icon – despite past mistakes – will help Fernandez win”.
Will yet another Peronist president be able to pull Argentina out of the crisis? Markets don't seem to think so at the moment.
“In the meantime, I exclude that there will be a new bankruptcy like that of 2001, the famous one playpen. Argentine debt is still relatively low, even if the debt/GDP ratio with Macri has risen to 85%, a figure that seems low to us Europeans but which for the history of South America is very high. Going back to Peronism isn't a good thing, but Fernandez is more expendable than Cristina: he is respected even by his opponents and he seems to me extremely willing to continue – albeit in a different way – the ties that Macri had deservedly re-established with the international financial world. I think the markets won't be so worried in the long run."
Perhaps they hope that the outgoing president can still recover?
“As I said, it's out of the question. Someone said that his reform process needed more time, but the truth is that Macri has not managed to revive investments. He had presented himself as a man of industry, the man who would move capital above all for SMEs, but there was no trace of this. He has failed precisely on his chosen terrain. In the end he was an improvised leader, assembled by a certain Argentine oligarchy, but incapable ”.
You rule out a bankruptcy, but Argentina's economy is certainly not doing well. What could happen now?
“The country is sitting on the edge of a volcano. The idyll with Peronism exists but it won't last much longer and then it will happen that the upper classes will realize that the lower classes also exist. I foresee a ferocious social protest, like Hong Kong, but this time the enemy is not China but the IMF and it also makes sense that this is the case: former director Olivier Blanchard himself admitted that the Washington body should review its methods of intervention. The revolt will anticipate what will happen in Europe in perhaps 10 years, and which in reality is already happening in France with yellow vests”.
However, it will not be a revolt of the last but of the penultimate, you maintain. In what sense?
“The latter have never had a say and will continue to be so. They have long since stopped believing in the 'magic' of Peronism. However, things will change now that the middle class has also become quite impoverished. Sooner or later it will make itself felt, certainly ”.
So what would be the right recipe, if not Fernandez's?
“The best in my opinion were the Radicals, the party of Raúl Ricardo Alfonsín, president of Argentina in the 80s. They proposed a reformist socialism on the Peruvian model, in order to support real industrial development. Argentina was a great producer of meat and is now the world's leading producer of soybeans, but it shouldn't be limited to this. Today, for example, even a railway network is missing, after the liberalizations of Meném which in the 90s dismantled what was one of the most advanced networks in South America. This is where Macri failed: reindustrializing the country, attracting investments to create jobs and improve services and infrastructure. International institutes should also intervene on this, as they would be in charge of doing so: the World Bank, for example, where is it? Take a shot! However, it is convenient for finance that things go this way”.
Speaking of investments, Argentina has long been a land of business for Italian companies, starting with Tenaris which generates a tenth of its turnover there, but not only. In recent times, however, even Made in Italy exports to Buenos Aires seem to be slacking off (1,1 billion in the first half of 2019, against 1,3 billion in the same period of 2018). In an international context marked by tariffs and the German slowdown, could this crisis represent a problem for our companies?
“Our companies are very resilient, especially SMEs, and indeed this situation represents a great opportunity for them. Our industry knows how to do everything, and there is a need for many things in Argentina. Even the ICE, over the years, has worked very well. So I think that our presence, albeit reduced compared to the past, will remain very strong and will not be particularly affected by this phase".
However, industrial and commercial ties with Italy are not enough for Argentina, and Macri's farewell could also jeopardize relations with the United States, in an already very precarious international context. What will be the consequences of Fernandez's probable victory in the presidential elections in October?
“In the meantime, a new chapter in the rivalry with Brazil will take place, given that in my opinion Bolsonaro wants to cultivate part of the Amazon also with the intention of undermining Argentine dominance on the soy market. Among other things, precisely on this market, the grain for Buenos Aires is the slowdown of the Chinese economy, China being the first importer of soybeans. That's why in my opinion a winning move could be to go back to investing in meat, also by virtue of the agreement finally reached between Europe and Mercosur, which represents an enormous opportunity for exports”.
And with Trump, how will it fare?
“This new, more moderate Peronism could even get along with us, but the future president will have to negotiate intelligently, keeping in mind the tensions between the US and China, which are destined to last for a very long time. Beijing is an important partner, but it won't be necessary to go against Washington: on this I have great trust in the great Argentine diplomatic tradition, which will work to find a balance. Even on this Macri was a disaster: he limited himself to maintaining good personal relations with President Trump ”.
