What are we to make of Argentina’s surprise election results on August 11, which jolted pollsters and analysts alike, and roiled the country’s financial markets? In the presidential primary for the country’s October election, the opposition ticket of Alberto Fernández trounced President Mauricio Macri by an unexpected margin of 15.6 percent.
The Fernández coalition attributes its victory to Mr. Macri’s failed economic policies, blaming him for the current economic crisis, recession and high inflation. Mr. Macri, by contrast, blames the fear of a future government of Kirchnerism — his label for the opposition — for the postelection financial turbulence as well as the problems of the economy since he took office more than three and a half years ago. He argues that both the markets and the people have everything to fear from such an outcome.
This disagreement is not just an academic argument, nor one specific to Argentina. It is a recurring, almost archetypical debate during economic crises that spill over into political contests. In recent years — in Britain, Spain, France, Greece and other countries where failed economic policies faced left-of-center challengers — Mr. Macri’s refrain was a frequent line of attack by incumbents.
Financial markets can move for many reasons, which can be unclear or even based on misperceptions of reality. In the case of last week’s news, we have electoral losses by a government whose economic policies have clearly failed and gains by challengers who hail from a period of strong and widely shared economic growth. This is not something that is inherently bad for the economy.
With Kirchnerism, Mr. Macri refers to the policies, followers and presidential administrations of the Kirchner family, which held office from 2003 to 2015 — first Néstor Kirchner, and then Cristina Fernández de Kirchner. Ms. Kirchner is running as the vice-presidential candidate on Alberto Fernández’s ticket and is a prominent leader of the opposition coalition — although this coalition is much larger and broader than the “Kirchnerista” base.
From an economist or social scientist’s perspective, it’s not clear why Kirchnerism should inspire fear. Looking at the most important economic and social indicators, the governments of the Kirchner presidencies were among the most successful in the Western Hemisphere.
Independent estimates show a decline of 71 percent in poverty and an 81 percent decline in extreme poverty. The government instituted one of the biggest conditional cash transfer programs for the poor in Latin America. According to the International Monetary Fund, gross domestic product per person grew by 42 percent, almost three times the rate of Mexico. Unemployment fell by more than half, and income inequality also fell considerably. The 12 years the Kirchners held office resulted in large increases in living standards for a vast majority of Argentines, by any reasonable comparison.
Economic growth waned in the last few years of Ms. Kirchner’s presidency. The government made some mistakes and was also dealt an external economic blow. A 2012 ruling by a federal appeals court in New York — a decision widely regarded as dubious and political — took more than 90 percent of Argentina’s creditors hostage to force payment to a small group of “vulture funds” that refused to join the debt restructuring of the early 2000s. The United States government blocked loans from international lenders such as the Inter-American Development Bank, at a time when the economy needed the foreign exchange.
By comparison, poverty has increased significantly, income per person has fallen, and unemployment has increased during Mr. Macri’s term, which began in December 2015. Short-term interest rates have shot up to 75 percent today from 32 percent; inflation has soared to 54 percent from 18 percent. The public debt has grown to more than 86 percent of G.D.P. from 53 percent.
How much of this economic crisis and poor performance is his predecessor’s fault?
In 2018 Mr. Macri signed an agreement for a $57 billion loan — the largest IMF bailout in history. The loan agreement, along with the reviews since, detail the government’s economic goals, strategy and execution. There is a lot of information publicly available that lays out what went wrong.
The main strategy of the program was to restore investor confidence through tighter fiscal and monetary policy. But, as has often happened, these measures slowed the economy and undermined investor confidence. By October, the results were vastly worse than the IMF had projected. The government and IMF increased both fiscal and monetary tightening, but it did not help.
The government also wasted more than $16 billion in unsuccessful attempts to keep the peso from falling and greatly increased the more problematic foreign component of the public debt. The result has been near-constant recession and high inflation, enormous interest rates, peso depreciation, financial instability and the huge run-up in public debt. The debt increase is particularly noteworthy because Mr. Macri inherited a low level of public debt.
Ironically, the IMF is well known in Argentina for promoting similarly unworkable policies during the deep depression of 1998 to 2002 — comparable to America’s Great Depression of the 1930s. Yes, history is repeating itself, although in this case the IMF has a stronger partnership with the government than it had 20 years ago.
The Fernández candidates will have to outline how they would get out of this mess. They can explain how Argentina exited from a much more severe economic crisis, with an unemployment rate more than twice as high and millions of previously middle-class people having fallen into poverty. They can assure creditors that there is no need for default on the public debt today, as there was then, because it was completely unpayable. But, as in 2003, the economy cannot recover under the conditions agreed upon with the IMF, and they will have to be renegotiated.
Millions of Argentines remember the last depression and the role the IMF played. Many also remember the rapid improvement in people’s lives over the ensuing decade. That collective memory and consciousness may now determine the outcome of this recurring debate over the economy, and with it, the October election, and possibly much of Argentina’s future.
This column originally appeared in the New York Times.