Argentina’s government reaps what it sowed

Argentina’s world cup victory now seems like a distant memory. Only eight months ago, the country that had become an economic joke was once again the champion of the world. Surely, things were looking up. 

The Soy Dollar, the Qatar Dollar, and the Coldplay Dollar (to name a few) were always gimmicks for a quick cash grab when the IMF needed justification to lend more money or the government’s mismanagement was exposed. 

Public officials will blame the drought and rival candidates. It was never about the drought, and only one party had the power. The foreign exchange and tax policies fueled the central bank’s endless money printing—the latest destroyer of the country’s vast natural resource wealth. 

"Central banks are divided in 4 categories: the bad ones, like the Federal Reserve, the very bad ones, like the ones in Latin America, the horribly bad ones, and the Central Bank of Argentina."

-Presidential Candidate Milei

Alberto Fernandez is a puppet for modern Peronism under the Kirchnerism brand. When the brand lost power following years of Cristina’s corruption and abuse, the government’s credibility went with it. 

The approach to every issue became kicking the can to the next government (post-October 2023) and printing money to keep the economy turning. In the past, the government just raised export taxes, but there was no more blood to squeeze from that rock. 

Argentina’s official policy became muddle-through economics. Sergio Massa, the latest Economic Minister and most politically capable, kept everything together with his elegance and empty promises. He still has a chance of becoming the next President. This is Argentina, after all. 

The actual economic definition for Argentina is autarky. Autarky is when a nation becomes self-reliant. Only Argentina’s was not by choice. Argentina’s economic model is Forced Autarky. The government never wanted to be self-sufficient; it was thrown down this path by the corrupt leadership. It is not just Kirchner but an utterly rotten system to blame. 

The government’s reactions to each self-inflicted crisis were the cause of the next one. The Soy Dollar encouraged companies to export soybeans that should have been crushed. Farmers held corn, and the domestic prices fell. 

Implementing the Agro dollar incentivized farmers to sell grains after Brazil’s record crops weighed on domestic prices for months. Seven million tonnes was sold primarily by exporters, and as a result, feed costs rose. Meat prices skyrocketed—a serious election problem in a country with the world's highest per capita beef consumption. 

The government fought one crisis while simultaneously causing the next. The latest was the resounding defeat in the PASO primaries. Monday morning, the currency fell over 20%, while the offshore (read real dollar rate) fell even faster. 

The government was forced to halt meat exports for 15 days. This will almost certainly need to be extended. Annualized inflation is in the neighborhood of 150% today. The central banks hiked rates to 118%, more than 100% above its neighbor Brazil. 

Farmers no longer have the incentive to sell anything. The government must fix the price of meat or risk being completely swept out of office. Current President Fernandez has nothing to say on the matter, and Cristina has been waiting to be heard from for a month. 

Circling back to the beginning of this piece, if the farmers will not sell crops and the country cannot export meat, then the government cannot generate dollars. The central bank must print more money. The vicious feedback loop spins faster and faster. The endgame is here. 

In the end, positive steps were being made out of necessity. Argentina will be a net energy exporter in 2024. The failed dual currency experiment will almost certainly die. Sovereign debt and equity markets are holding in surprisingly well. A country rich in metals, lithium, agriculture products, livestock, water, energy, and the reigning world champions might finally be looking up.