Some 150 million dollars has been escaping the Central Bank per day. That is a projected loss of US$3 billion per month.

La Nacion

A bad diagnosis, a bad treatment



Monday, November 24, 2013



By Carlos Pagnini



Some 150 million dollars has been escaping the Central Bank per day.  That is a projected loss of US$3 billion per month.  More than double the controversial investment by Chevron in Vaca Muerta.  With the clamp and everything.  It means the new men in charge of the economic policy, Jorge Capitanich, Axel Kicillof and Juan Carlos Fábrega, face a ferocious attack by the market upon the reserves.



The response from Capitanich and Kicillof to that process recognizes two difficulties: a currency exchange problem susceptible to being faced with taxation instruments, and a problem of “variation of prices” that will be solved with just disciplining those who maximize their profit at the expense of other parts of the value chain.



In the official discourse, those two phenomenon remain disconnected.  The absence of a connection is due to a difficulty in admitting the existence of the market. The economy doesn’t have “price variations.”  There is inflation.  And as the government denies it, pesos sink against the dollar.  Or moves towards things done with dollars: imported cars, international trips, goods bought abroad over the internet.



The refusal to interpret the crisis in light of the decisions by any number of actors is the decisive continuity among the practices of Guillermo Moreno and the explanations by  Capitanich and Kicillof.  The diagnosis determines the treatment.  From those who don’t admit a disturbance in the market, don’t expect market remedies.



Until now, Capitanich and Kicillof haven’t proposed them.  Neither in their statements to the press nor in their conversations with businessmen have they spoken of modifying the exchange rate or correcting interest rates.



Kicillof doesn’t only rule out those options.  For him they are the pseudo-scientific recipe from those who are custodians of the interests of the financial system: every bank is well regarded as a “vulture.”  This explains the replacement of Adrián Cosentino with economic theory historian Pablo López at Finance.



To neutralize the fall in reserves, Kicillof is analyzing a reconciliation with multilateral credit organizations.  Will it be sufficient?  An extremely successful negotiation with the World Bank will free up US$3 billion for the next three years.  It’s the sum that could be lost in one month.



Overall, Kicillof’s tactic will require a change in foreign policy: in the institutions that that they plan on reaching out to, the opinion of the United States is decisive. A challenge for Cecilia Nahón, ambassador in that country and member of the minister’s circle.  And a problem for Héctor Timerman: his terrible relations with Washington are intoxicating aspirants for his chair, like Carlos Bettini, the ambassador to Spain.  Maybe they are all forgetting that the real foreign minister is Cristina Kirchner, which explains Timerman’s survival.



The government’s communication apparatus spent the weekend canonizing Kicillof’s position, leaving Capitanich on the second rung.  Did the man from Chaco not produce an alternative vision because he has none or because he didn’t have time to formulate one?  In any case, the move is very risky: it turns Kicillof into a lit fuse.



It’s not a secondary question.  If Kirchnerism insists on dealing with the markets without market instruments, it will aggravate the inconsistencies.  The incorporation of Capitanich and the ascension of Kicillof excited expectations.  The PJ leadership and the world of business see the Cabinet Chief as a Peronist who is so flexible that he could serve Menem,  Duhalde and the Kirchners with the same fervor.



It is supposed that Kicillof is a defender of a split currency exchange rate system. Therefore, exporters are avoiding selling and importers are speeding up their purchases, waiting for the exchange rate that they were calculating, but that perhaps will not come. The supply of dollars is shrinking and demand is skyrocketing. Conclusion: Guillermo Moreno’s exit and the appointment of new officials intensified, for now, the pathologies that they wanted to remedy.



The coming weeks will be crucial for knowing if Cristina Kirchner’s reshuffle is a change of strategy or a change in phrasing. Perhaps she thinks her experiment just had difficulties in management.  That she had to replace Moreno, Lorenzino and Marco del Pont with more efficient executors. But the obstacle is different. The “model" has found its true limitation: ideology. It will be more expensive every day for the President to meet the demands of the market with policies that deny the market exists.



This is the reason why since last Wednesday the unknowns multiplied. The only certainty is that there is a reset imposed on the power circle. Capitanich’s entry and the promotion of Kicillof are signs of greater gravitation to Maximo Kirchner during his mother’s convalescence. It is true that Capitanich was added to reinforce an alliance with PJ: the governors lost votes for fault of the failures of economic policy. But the hand of the son of the President was seen in the expulsion of Abal Medina, who not even retained as Ambassador to Santiago: the Government of Chile didn’t receive the notice of its effect.



Abal Medina was condemned because in September he agreed with Franja Morado on the leadership of the Department of Political Science of the University of Buenos Aires, resulting in the defeat of the candidate from La Campora, Edgardo Mocca, panelist on “6,7,8” and professor at the School of Government that Capitanich founded in Chaco. It was not the only sin: the leaders of La Campora detected unpleasant complicities between Abal and Daniel Scioli. They were never too bothered by the Buenos Aires province efforts in favor of Mexico's Carlos Slim and the management of the advertising by the State. That key tool, sacred to people who see almost the only dimension of the policy in its communication, passed into the hands of Rodrigo Rodríguez, a subordinate of Andrés Larroque. And the last mistake: Abal put Matías Garfunkel onto the list of the Caselli family, hated by the Kirchners, for the leadership of River.



Abal’s exit leaves several figures homeless: the most important is Martín Sabbatella, the head of Afsca. Sabbatella is an unpleasant figure for the PJ.  The lists for his new party, Nuevo Encuentro, sapped votes from the mayors from the suburbs. An unsuspecting government supporter like Carlos Kunkel called him a "scavenger". Without Moreno, without Abal and with Sabbatella on the outs, the President must reassemble her battalion against the media.



Carlos Zannini was also weakened by the rise of Capitanich. "It is crazy; It believes that he can be President," said Maximo Kirchner in front of an intimate associated talking about Zannini. The egal and Technical Secretary has a single challenge until end of year: to resolve the status of the head of the Army, César Milani, who doesn’t take a step without reporting it to him. Will Milani go back to being exposed in the Senate by a promotion to lieutenant general?



It is another challenge for Capitanich. In addition to being coordinator of the Cabinet, government spokesman, supervisor of the economy and presidential candidate, will also be the link between the Justicialist Party and the Congress. This Leonardo da Vinci reincarnated will go tomorrow morning to the upper house to request its agreement on the President of the Central Bank and to expedite the adoption of the Civil Code.



The move in favor of Fabrega is significant: unlike its predecessor, Marco del Pont, he will have stability until 2019. The President wants to have influence on the BCRA in the next government.



The enactment of the Civil Code electrified the ruling party. The agreement with the Church produced a crisis in the caucus members. Julián Domínguez adjusted the new text in a discreet dialogue with Víctor Fernández, the rector of the UCA, and Carlos Malfa, one of the more astute members of the episcopate. The thread was cut where it was least expected: the leader of the block, Juliana Di Tullio. Julian and Juliana came into a compulsory conciliation managed by Kunkel.  The fissures delayed it being taken up by the House of Deputies, forcing Julio Alak to seek the vote of the PRO. The drafting of the new articles also left others wounded: Ricardo Lorenzetti will have to explain to the prestigious Aída Kemelmajer the pruning her secularized contributions to family rights suffered.



The rush to approve the code is understandable: since Antonio Brufau threatened Julio De Vido ("you will no longer be Minister, but Repsol will be going after your good for all the damage you’re doing to us"), the civil liability of officials has become a nightmare for the Cabinet. In the confiscation of YPF, the revocation of audiovisual licenses and the expropriation of airlines are the keys to the urgency. Nothing should surprise anyone:  the statist daydreams Moreno and Kicillof also need clear impunity.