Limits on foreign currency exchange have led to the development of an underground market for dollars – such is the economic climate in Argentina today. Six months after tightening currency controls, it is not uncommon to find such ‘cash vendors’ in metropolitan areas like Buenos Aires, the capital, and, though illegal, it often is an unpunished crime.
Borrowing heavily from the Peronist past of the 1940s and 1950s, currency controls are just one among many old-school Peronist maneuvers to revive a flagging economy and souring political prospects.
Cristina Fernandez de Kirchner’s nationalization of Spanish firm Repsol’s stake in Argentine oil giant YPF has increased her popularity greatly among rank-and-file citizens in Argentina, but the move has spooked investors who fear this return to policies that many believe ultimately led to the deep recession Argentina experienced during the 1980s.
At the center of this neo-corporatist realignment of Argentina’s domestic economy is Economy Vice Minister Axel Kicillof, a man described by some as a radical left-wing economist and others as Argentina’s savior. Kicillof, a graduate with honors from the University of Buenos Aires and professor of economics at the same university, previously served as the director for the private pension funds of Aerolineas Argentinas after it was nationalized in 2008. He is steeped in Peronist left-wing politics, active in the Peronist youth organization La Campora led by late President Nestor’s son Maxim.
Now, Kicillof will serve in the state’s administration of the nationalized YPF alongside Federal Planning Minister Julio de Vido, a member of the Kirchner inner-circle.
Politics in Argentina are complicated. The Peronist Party, long dominant since the fall of the military dictatorship that ousted Juan Peron’s second wife Isabella Peron, has two branches, one on the right and one on the left. Axel Kicillof, firebrand of the Peronist left, has not been shy in condemning the policies of former Argentine President Carlos Menem that led to the privatization of YPF.
During the neo-liberal period that started during the military dictatorship and that was perfected during Menem’s presidency, hydrocarbons were considered simple commodities…YPF’s new role has to be associated with economic development.
– Axel Kicillof
There are the complicating factors of rising domestic demand for energy and falling production from YPF sources during the period 2003-2010. Many Argentines also have a sense that the company, being such a major player in the national economy, should take a more active role in the national economic direction.
This reaction to the IMF-sponsored policies of former Argentine President Carlos Menem stem from a colloquial belief that the Argentine debt default during the 1990s was a direct result of Menem’s economic policies. Because demand from China for Argentina’s products has been so high during recent years, the economy has grown at a phenomenal 7.6% rate since Cristina Fernandez de Kirchner’s late husband Nestor’s presidency began in 2003.
This dynamic growth has contributed to inflation and analysts warn that the Argentine economy may be overheating. Keynesian economics during and after the crisis may have made sense to stimulate growth, but maintaining such growth policies during robust growth leads to monetary expansion over price stability making it more costly to buy basic goods and services on the domestic front.
Oddly, the nationalization of YPF has provided President Cristina Fernandez de Kirchner with the Corporatist triad for national governance: the approval and support of government, labor, and the private sector. Initially, Argentine business found the nationalization of YPF abhorrent but many have come to embrace the idea now. One of the legacies of Juan Peron’s administrations was the very close ties between business and government. Firms like Pemex, PDVSA, Ecopetrol, Petrobras, and ENAP remain under partial or total state control to this day and are lavished with politically mandated contracts, social programs, and employment.
The Argentine economic crisis of the 1990s wiped out many of Argentina’s large national corporations and led to their replacement with multinational firms like Bank of America, Santander, and Repsol. The rise of corporatism, bent on restoring ‘sovereignty’ in areas of vital national economic interest, may be partly explained by this phantasm of the past.
In an address before the Argentine Senate after the nationalization of YPF, Axel Kicillof declared:
When there is a deep crisis, the worst thing to think is that the state is bad, that it is the problem. The state is the solution. In times of recession and economic crisis, the state becomes a key player in restoring demand and production.
Accusations that Kicillof is a ‘fiery red Marxist’ have persisted but many cheer his outright rejection of many of the governing principles of globalization in the 21st century.
Kicillof firmly believes that Argentina must find its own path to development, a middle-way to economic prosperity. Part hubris, part historical legacy, the policies enacted thus far are born out of Argentina’s skepticism of internationally backed economic recommendations and transnational industry.
An academic who has written extensively on British economist John Maynard Keynes, Axel Kicillof has wasted no time making enemies with his actions, and many analysts believe, if his nationalization policies fail, he will be nothing more than a scapegoat for the Kirchner administration. Since assuming a more influential role, the government has limited foreign currency exchange, given the government greater access to reserves, and increased import restrictions.