Nestor's suit

Alberto's dream was to return to his glorious years, to be the new Nestor Kirchner, the phoenix, to rise from the ashes of Macri's destruction, to return to growth and Chinese rates, to the motivational speeches and the hugs from the usual hypersensitized. And the dream seemed easy. It was raising a lever, as Nestor did, "turning on" the economy and start to grow and negotiate the debt as Nestor did, and get rid of the IMF, like Nestor. The Kirchner version of Ricardo Alfonsín wearing his father's costumes.

But unfortunately the ruling Peronist party - but especially for all Argentines - 2022 will not be 2003, and the next five years will be very different from the beginning of this millennium.

I have at least six reasons to believe that. I´ll go in order.

First of all, the starting point is very different. In the last ten years, Argentina's Gross Domestic Product fell a total of 6%. It is the second-worst performance in all of Argentine history - yes, since 1810, taking data from the North and South Foundation - only surpassed by the 11% drop in the eighties. The depression at the end of Convertibility was similar in intensity but much shorter and it followed a long period of relatively high investment. The “micro” of the Nestorian revival was almost intact. Today, on the other hand, we come from a long recessive period and a production structure that has been badly hit by years of underinvestment, which was barely enough to offset the amortization of capital.

Second, the first Kirchner government received very low inflationary inertia and almost full currency convertibility ("convertibility" understood as "absence of capital controls" and not as "fixed parity of 1 Peso 1 Dollar"). Despite the disruption of the 2001 crisis, pesos were demanded without impositions like those that exist today. The economy of the next five years will begin with an inflation of 3% / 4% per month or 50% / 60% year-on-year and a huge amount of pesos demanded just because capital controls are in place.

Third, because despite having made a debt restructuring a year ago, Argentina already has a new and imminent debt problem in which the next payment to the IMF is only a minor part (and I would add, the most simple to solve).

Nestor Kirchners' economy, like the current one and possibly the next five years as well, was financially isolated from global markets. However, in the first Kirchner government the default was behind and many of its costs had already been paid. The risk of default today is ahead and we will pay its costs in the future.

The debt problem is amplified by what is mentioned in the second point. Today Argentina also has a problem with its debt in pesos, a problem that worsens if inflation drops. The government gains from inflation, which works like a tax that liquefies the pesos it owes. Without this debt liquidation, the dynamics would be even more explosive than they are. Unfortunately inflation cannot go down until this problem is solved.

Fourth, the first Kirchnerism ruled with an atypically high and stable exchange rate competitiveness. At today's prices, between 2003 and 2007, the official dollar - the one received by the exporter and paid by the importer - was approximately 160 pesos. There were better incentives to export or substitute imports and a much more open and commercially integrated economy. This was an important source of growth during that period. Today, not only is that incentive absent, but competitiveness suffers from many additional obstacles and barriers.

This situation is complemented by another still to be resolved. This year we will have the highest exports since 2014 and the largest current account surplus in a decade. Trade dollars for soybeans with record prices and savings in international tourism due to the health policy lockdowns. However, the Central sells dollars on a daily basis and tightens the controls to contain an unsustainable exchange rate. In 2021 there will be no accumulation of reserves. Chronicles of an inevitable devaluation.

Fifth, the first Kircherism assumed with the fiscal adjustment already made, with liquefied pensions and salaries and new taxes. Nestor received a fiscal surplus of 3% that accompanied him until 2010. The next five years begin with salaries and pensions that have already been adjusted, but with a deficit of around 4% of GDP, a State twice as large as the 20 years ago and a much higher tax burden. To get to put on Nestor's suit, Alberto will have to put on Remes Lenicov's first

In sixth and last place is the soy and commodities boom. Argentina came out of convertibility with a double dose of luck. The price of soybeans at the end of 2001 was the lowest since 1972 and multiplied by 2.5 in 2004 and by 4 in 2008. Today prices are still high, but falling. Soy is already 25% lower than the price at which it was harvested last season.

But it is not only the price. Agricultural production in those years was in the midst of a technological transformation with dynamics that had not been seen for a century. With the advance of direct seeding, GMOs, and double cropping, the field went from producing 40 million tons in 1996 to almost 100 in 2011. Looking ahead, the expansion will continue, albeit at a less breakneck pace.

In short, a long combination of factors exposes the country to a very critical scenario looking ahead. There are underlying problems in a bankrupt economy and with all its incentive schemes broken. Getting out of this swamp requires effort, boldness, and consensus. Let's hope for the government to be up to the challenge, although it is not easy to be optimistic. Not only because the suit looks too big for him, but also because, as the story tells, the emperor appears to be naked.