Argentina, Rule of Law and the Implications of Debt …s3.amazonaws.com/media.hudson.org/files/publications/2014.09.23Can... · •Inflation (as of 2007) ... Significant shortcomings

Argentina, Rule of Law

and theImplications of Debt Default

Hudson InstituteSeptember 23, 2014

Kirchnerism: 2003 / 2015

Kirchnerism: mandate, coalition and circumstances

• Kirchner’s mandate– consolidation of power and restoring the authority of the

presidency.– promoting growth.

• Coalition. Kirchnerism mounted a loose coalition between traditional peronism (specially provincial governors); chunks of the urban poor underclass through new social movements; and most of the left-of-center intelligentsia through its human rights policies.

• Circumstances– The depth of the crisis gave a social carte blanche;– Best international economic scenario for Argentina in decades.

2003-2007 NK

•Supreme Court renewal

•Presidential authority reconstituted

•Avoided the use of force to restrain social protest which could have caused governance difficulties

•Strong symbolic Human Rights policies

•Maintained fiscal and trade surpluses

•Recovered public investment and State funcionality

•Increased investment in Education

2007-2011/2011-2015 CFK

•Audiovisual Communication Services Legislation

•Polítical Reform Law

•Universal Child Allowance

•Social Security coverage increase

Some achievements 2003-2015

•No long term nor structural policies in crticial areas such as Energy, Transport and Housing

•Tactical use of public investment = growth of discretionary power

•Lack of policies to increase structural competitiveness and institutional quality

•Inflation (as of 2007)

•Continued labor informality and low productivity

•Use of the presidential bully puplit to attack media, companies, NGOs, etc

•Freedom of Information Legislation (lost parliamentary status in 2012)

•Political intervention of professional public institutions: INDEC, SIGEN, Regulatory Agencies, etc.

•Obstruction and confrontation with Judicial Branch

Significant shortcomings 2003-2014(other than debt default)

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

GDP growth rate in constant terms

Growth rateSource: INDEC

Néstor Kirchner2003-2007

Average growth:8.8%

Cristina Fernández de Kirchner2007- 2012

Average growth:5.5%

20078.47%

200717.16%

0%

5%

10%

15%

20%

25%

30%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Anual Inflation rate

Inflation (INDEC)

Source: INDEC and Direcciones Generales de Estadística de las



-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Fiscal balance and current account (% GDP)

Financial result(% GDP)

Current Account (% GDP)

Fuente: INDEC Oficina Nacional de Presupuesto (ONP) and International Monetary Fund (IMF)


Average growthFinancial result: 1,7%Current account: 3,6%


Average growthFinancial result: -0,9%Current account: 1,4%

The economic mandate: promoting growth

• Macro: one-eyed Keynesianism: it only knows how to stimulate growth, never how to stifle inflation.

• Micro: increasing intervention with gross malpractice (energy, beef, dairy…)

• Bigger and bigger role of the State as a distributor but increasingly stifling investment

1983-2013: public expenditure

Source: BS Consult fromMecon.

1991-2013: tax pressure


1990-2013: tax and spend

0

5

10

15

20

25

30

35

40

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Evolución de la presión tributaria, 1990‐2010

Selección ALC (15) OCDE (34) Argentina

Source: BS Consult from Estadísticas Tributarias en América Latina, OECD.

State vs Market• By 1990, huge chunks of the economy where State-run, including most oil and

energy, telecommunications and utilities. Inefficiency and fiscal deficits.

• Menem (89-99) led a huge privatization wave, partly reverted under the Kirchners (03-13). Some examples:– YPF, Oil and gas, #1 firm; renationalized in 2012 (trials pending with

Repsol);– Agua y Energía Eléctrica, water utility, renationalized in 2006 (Suez);– Aerolíneas Argentinas, airline, renationalized in 2008;– Correo Argentino, postal services, renationalized in 2004;– Pension funds, renationalized in 2007;– Segba, electricity distribution, current firms under check due to rates freeze;– Gas del Estado, natural gas distribution, current firms under check due to

rates freeze;– Transener, Central Puerto, Central Costanera and others in electricity

production and transport, under check due to rates freeze;– Entel, telecommunications; still running as private.

Political mandate: restoring authority

• All power to the… president!– Concentration of power in the federal

government vis a vis the provinces.– Increasingly intervening in business and

society.– Destruction or intervention of institutions.– Fiscal scavenging (whatever its costs).– Increasingly tilting the balance towards the

Executive Branch vis a vis Congress and the Judiciary.

Concentration of power: federal and state govt


Institutional breakdown• Lies, damn lies and statistics, 2007-2013

– Inflation, intervention of the statistics institute (INDEC).– Private indexes, fines, courts.

• Central Bank independence?– From Alfonso Prat Gay, to Martín Redrado, to Mercedes Marcó del

Pont.– Review of its Chart: from “preserving the value of money” to mixed

aims.

0.0%5.0%

10.0%15.0%20.0%25.0%30.0%35.0%40.0%45.0%

Jan-

03Ju

l-03

Jan-

04Ju

l-04

Jan-

05Ju

l-05

Jan-

06Ju

l-06

Jan-

07Ju

l-07

Jan-

08Ju

l-08

Jan-

09Ju

l-09

Jan-

10Ju

l-10

Jan-

11Ju

l-11

Jan-

12Ju

l-12

Jan-

13Fuente: Elaboración propia en base a INDEC e IPC Congreso.

Inflación en Argentinacomo % de va. i.a.

Judicial reform• The last and most dangerous initiative.• A broad judicial reform initiative. The three most important issues:

– reform of the judicial nomination and confirmation process (significantly increasing the power of the presidency and the ruling party);

– significant limitation to precautionary measures in cases involving the State;

– creation of new “circuit courts”.• As a whole, the reform would significantly increase the power of the

State and government against ordinary people, businesses, etc., affecting property rights, rule of law and due process.

• All bills enacted by Congress, currently under judicial review.

Problems

-1

4

9

14

19

24

29

34

39

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Source: IMF.

Inflation anual rate y-o-yArgentina BrazilChile PeruUruguay

-5.0%-4.0%-3.0%-2.0%-1.0%0.0%1.0%2.0%3.0%4.0%5.0%

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Fuente: Elaboración propia en base a MECON.Nota: desde 2007 se descuenta rentas de la propiedad.

Resultado primario y financiero de la admministración central. Como % del PBI.

Superávit primario / PBI Superávit financiero /PBI

Market capitalization of local firms

Source: Cruces and García-Cicco, 2012.

Argentina’s economy in the long term

“Suppose someone in 1945 had asked: ‘What part of the world do you expect to experience the most dramatic take-off in the next three decades?’ Probably I would have given an answer something like the following: ‘Argentina is the wave of the future. It has a temperate climate. Its density of population provides a favorable natural resource endowment per employee. By historical accident its present population is the fairly homogenous progeny of Western European nations. And Argentina is in 1945 at that intermediate stage of development from which rapid growth is most easily expected.’How wrong have I been. (…) Their sickness, Shumpeter would claim, is political and sociological rather than economic. It has to do with the breakdown of social consensus. It has to do with the workings out of the logic of populist democracy.”

Paul Samuelson, The World at Century’s End

Poverty• By the end of 2010, poverty in Argentina was at

21%, affecting 8.4 million people. 43% of those are under 16 years of age and 60% under 25: that’s 5 million young people.

• Important regional dispersion:– Buenos Aires Metro: 17%.– Northeast: 41%.– Northwest: 32%.– Cuyo: 28%.– Pampean: %.– Patagonia: 13%.

%19

29%

40%

41%

23%

18%

41%44%

36%35%29%35%

32%

31%27%

35%

22%18%

10%

3%

5%

CABA 8%

3%

21%

43%

Source: Fundación Pensar through Indec.

Challenges: basic infrastructure

3%

40,60

32,00

28,50

7,70

41,80

29,5026,80

4,00

40,90

29,70

21,50

5,30

36,40

27,70

22,20

5,70

33,90

27,20

21,20

3,70

31,60

24,40

20,70

3,80

0

5

10

15

20

25

30

35

40

45

2004 2005 2006 2007 2008 2009

Déficit de acceso a cloacas, desagües pluviales, pavimento y alumbrado público

CLOACAS DESAGUES PLUVIALES PAVIMENTO ALUMBRADO PÚBLICO

Source: Fundación Pensar through INDEC.

Challenges: infrastructure

3%

Source: Fundación Pensar through WB.

2013 mid-term elections

Fragmented party system. Few examples of coalition building (and not succesful). Presidential system. Regional dispersion

Challenges: consensus building

3%

Left Center RightPeronism (50%) FPV (33%) FR (17%)Non-peronism(40%)

Left (7%)FAUNEN (24%)

PRO (11%)

Challenges: consensus building

3%

Opportunity: low debt

0

20

40

60

80

100

120

140

160

180

Fuente: MECON y OJF.

Deuda pública consolidadacomo % del PBI

Opportunity: terms of trade

Opportunity: shale gas& oil reserves

Technically recoverable shale oil & gas reserves by country

Vaca Muerta reserve

Looking forward: winds of change

Source: UTDT.

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Apr

-03

Oct

-03

Apr

-04

Oct

-04

Apr

-05

Oct

-05

Apr

-06

Oct

-06

Apr

-07

Oct

-07

Apr

-08

Oct

-08

Apr

-09

Oct

-09

Apr

-10

Oct

-10

Apr

-11

Oct

-11

Apr

-12

Oct

-12

Apr

-13

Oct

-13

Apr

-14

Government Confidence Index, 03-14

20253035404550556065

Jul-9

8A

pr-9

9Ja

n-00

Oct

-00

Jul-0

1A

pr-0

2Ja

n-03

Oct

-03

Jul-0

4A

pr-0

5Ja

n-06

Oct

-06

Jul-0

7A

pr-0

8Ja

n-09

Oct

-09

Jul-1

0A

pr-1

1Ja

n-12

Oct

-12

Jul-1

3A

pr-1

4

UTDT Consumer Confidence Index, 1998-2014

Thank you very much

How many geometric shapes are there in the following picture?

How many

geometric shapes

did you count?

1. How many children on the bus?

2. What time did the clock indicate?

3. What color was the rectangle?

CIPPEC

° • C1022AAA Buenos Aires, Argentina - Tel: (54 11) 4384-9009 • Fax: (54 11) 4371-1221 • [email protected] • www.cippec.org

“The most serious mistakes are not being made as a result of wrong answers. The truly dangerous thing is asking the wrong question.”

“The most common source of mistakes in management decisions is the emphasis on finding the right answer rather than the right question.”

Reframing Questions:

Considering the situation and prespectives for Argentina

Traditional question– “Why does Argentina fail to produce sustainable

development?”

A better approach– “What makes Argentina resilient and capable of positive

change despite unfavorable leadership?”

° • C1022AAA Buenos Aires, Argentina - Tel: (54 11) 4384-9009 • Fax: (54 11) 4371-1221 • [email protected] • www.cippec.org

The importance of the perspectivewith which we observe reality

The immense value of

conviction and

perseverance to overcome the obstacles we face

En 1885 the President of the Dutch Royal Science Academy said:

“Machines that are heavier than air will never

be able to fly”.

”The horse is here to stay, the automobile is only a novelty,

a passing fad”.

President of the Michigan Savings Bank to Henry Ford’s lawyer recommending that they do not to invest in the Ford Motor

Company.

In 1946, Daryl F. Zanuck, director of 20th Century Film Studios, commenting on the potential for TV

“After the first six months, this equipment will not sustain itself in any market. People will soon enough get tired of looking at a box every evening”.

In 1960, the General Manager of the first record studio that the Beatles submitted their music

to, rejected the possibility of a contract saying:

“¿Who could ever like this kind of music?”.

1. Ask the right questions2. Appreciate the positive and build upon that3. Overcome external obstacles, negativity and cynicism4. Dare to overcome your own internal limitations

Lessons Learnt

5. Plan, invest and commit6. Persevere7. If this works, great. If it doesn’t, still do what you can to

help improve the wellbeing of someone in need

“Never doubt that a small group of

committed citizenscan change the world.

In fact, it is the only thing that ever has.“

Margaret Mead

Thank you very much

Argentina, Rule of Law and the Implications of Debt …s3.amazonaws.com/media.hudson.org/files/publications/2014.09.23Can... · •Inflation (as of 2007) ... Significant shortcomings

Documents