October 13, 2020

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ARGENTINA: The Difficulties of a Double-Headed Government

BY Nicholas Watson

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Report Contents

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( 5 mins)
  • A lack of direction and internal rifts continue to dog President Alberto Fernandez’s administration.
  • The government’s grip in dealing with the twin health and economic crises remains shaky, and pressure for a political reset is unlikely to ease off.
  • Electoral logic should keep government divisions contained, though policy-making coherence is unlikely to improve.

Protests

The multiplicity of grievances driving demonstrations, another round of which took place yesterday, 12 October, are an especially noisy sign of the government’s struggles. Fernandez tends to shrug off demonstrations as the work of anti-lockdown fringes and embittered middle-class sectors who refuse to accept that the country has moved in a different direction since Mauricio Macri’s 2019 election defeat. To an extent, protests are functional for Vice President Cristina Fernandez (CFK) because they sustain political polarization. However, protests by the newly unemployed, the precarious lower middle-classes, and the poor would pose a far greater challenge. This remains a key risk over the coming weeks and months; December could be a flashpoint month. However, government handouts and Peronist-run social assistance structures have so far kept this risk in check.

Covid-19

Covid-19 restrictions – in place now for more than 200 days – are one of the main grievances behind protests. Argentina’s total reported caseload now exceeds 900,000, the sixth highest globally, and will soon overtake fifth-placed Colombia as the spread of the virus continues in provinces beyond the initial epicenter of the Buenos Aires Metropolitan Area (AMBA). However, Fernandez seems unable to conceive of an alternative to repeatedly extending lockdown restrictions despite evidence this is not working; the latest extension confirmed late last week means that restrictions will run until at least 25 October.

Lockdown fatigue and frustration is not confined to those demonstrating on the streets. The governor of Mendoza, Rodolfo Suarez, has rejected tighter restrictions for some areas in his province that have been ordered by the central government. Suarez hails from the Radicals (UCR), a member of the opposition Together for Change (JxC) coalition that governed under Macri, so his defiance may not necessarily spread to other, Peronist-run provinces. It is nonetheless a challenge to Fernandez’s authority, which is already moot given the two-headed nature of this administration.

Ultimately, what makes the situation so critical is not just that the government has been unable to prevent the virus from spreading, but that its Covid-19 strategy has caused immense economic damage. The latest World Bank forecast is for the economy to shrink by 12.3% in 2020, in what would be the deepest contraction in the region. Poverty will be in excess of 40.9% of the population in H2/2020, unemployment is at 13.1%, while monetary emission and devaluation expectations risk fuelling an inflationary spiral.

Friendly fire

A lack of political direction (beyond seeking judicial impunity for CFK) can be partly attributed to the internal divisions within the administration – and Fernandez’s inability to bridge them. This has been visible most recently in a spat among officials and prominent government supporters over the administration’s approach to the Nicolas Maduro regime in Venezuela. Kirchneristas are loathe to publicly condemn the Maduro regime but Fernandez is aware that he needs to keep the US on-side heading into complicated talks with the International Monetary Fund (IMF) regardless of who wins the US election.

The effect of these divisions is two-fold. First, it leads to poor decisions and incoherence across the policy spectrum (from the aborted Vicentin expropriation to a very lengthy Covid-19 educational hiatus to regulatory interference that has undermined business confidence). Second, political polarization is deepening and the institutional framework is being weakened, with the judiciary most notably under threat.

Cabinet unsettled

In this context, noise about a cabinet reshuffle has been building, though Fernandez has dismissed making any changes for now. Unsurprisingly given CFK’s role as senior partner in the administration, ministers who are most under pressure are non-Kichneristas, or those closest to Fernandez. These include Foreign Minister Felipe Sola, who has come in for strong criticism for his handling of the Venezuela controversy, and Justice Minister Marcela Losardo, whose support for CFK’s judicial reform is seen as tepid at best. Cabinet chief Santiago Cafiero, Fernandez’s right-hand man, is also unpopular with Kirchneristas. The departure of Losardo and/or Cafiero would represent a major concession by Fernandez and call into question his dwindling authority as president.

Central Bank (BCRA) Governor Miguel Pesce is not in the cabinet but his position is perhaps most vulnerable. The recent tightening of capital controls has failed to adequately protect BCRA reserves or achieve exchange rate stabilization. Finance Minister Martin Guzman, who opposed Pesce’s recipe, is not unassailable given the complicated state of the economy and the dimensions of the fiscal hole. However, Guzman’s success in the debt restructuring with private bondholders should give him some leeway yet, especially as IMF talks get underway.

Cohabitation, not divorce

Despite this highly problematic dynamic, a formal split between the different strands of Peronism within the governing coalition remains unlikely. Peronism is a uniquely malleable movement, and power is a strong harnessing force. Electorally, CFK still needs Fernandez. The Front for All (FdT) coalition was a convincing electoral force in 2019 even if it has struggled in government. The most likely scenario in the 12 months to come before the 2021 mid-term elections is for the administration to tack back and forth between pragmatism and populist posturing, as much out of political muddle as of any coherent strategy.

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