TO UNDERSTAND Argentina, you must understand the vagaries of its political system, Andrés Murchison tells me via Zoom from his farm in the south-west of Córdoba province.
Murchison was Secretary for Food and Bioeconomy (the equivalent of a minister in South Africa) under Mauricio Macri, who was president from 2015 to 2019.
To understand the recent election of Javier Milei as president of the world's eighth-largest country by area (and the second-largest in South America), Murchinson says we must understand the central political force in Argentina, the Peronist movement.
Peronists have won eight out of 11 presidential elections since the return of democracy in 1983. Peronism is not embodied in a traditional political party with a single coherent ideology — it has morphed and transformed from left to right, from conservative to liberal, depending on who is in charge.
In 2001, Néstor Kirchner took the helm. He became president in 2003 and was followed by his wife, Cristina. She served two terms. (The Kirchner partnership is reminiscent of the political synergy between the founder of the Peronist movement, Juan Perón, and his wife, Evita).
“The Kirchnerists in the Peronist movement is a centre-left grouping", Murchison explains. “Nestor was very left. He was aligned with Chavez in Venezuela, for instance. The main characteristic of the Kirchnerist left-wing populism was, on the one hand, cuts and subsidisation and, on the other, tariffs and high taxes.
“They were in power practically for 20 years and the macroeconomy was depleted over time. We have enormous foreign debt and run on massive deficits. We have lived beyond our means, coupled with high taxes for the middle and working class and the production sector. These are terrible policies, in my view, but we have a 40% poverty rate in Argentina, especially around the big urban areas, and that was a significant support base keeping the Kirchnerists in power."
Parallels with SA
The parallels with South Africa are almost uncanny.
Murchison says “massive corruption" within the government developed alongside populist economic practices, further depleting the economy. And one of the consequences has been a “massive brain drain".
“With such low productivity, salaries have dropped. Our talented, educated young people are leaving for Europe, Australia and the States."
As in South Africa, less was invested in infrastructure. “Our crumbling infrastructure is a big issue. You have to look at the state of our roads to see yet another consequence of the economic disaster we find ourselves in. And like in South Africa, we also have very high public spending. We have 22 provinces, so the money goes mostly on salaries and very little into infrastructure and other services."
Importance of agriculture
Agriculture is the lifeblood of Argentina. Two-thirds of its exports are agricultural and Murchison says the country of 46 million people produces enough food to feed nine times that number.
Murchinson is a prominent farmer in the centre of Argentina near the town of Villa Valeria, in Córdoba's General Roca District. “We have bush here, but also beautiful arable farmland. I farm with zero-tillage crops like soybeans, corn, sorghum, sunflower and wheat. And I also run Angus and Brangus cattle and buffalo."
Apart from the big three export crops — soybeans, mielies and wheat — a wide range of regional products earn foreign currency.
“We have tea production, tobacco, sugar, dairy and wine. From Patagonia, we have a lot of fishing products that go to Japan, China and Europe. Agriculture is the main value of our economy. But farming has been deeply affected by the Kirchner government," he says.
First, by taxes. “We have what they call withholding taxes on all the crops. On soybeans, it's about 30%. So, if you sell a tonne for $500, the farmer only gets $350. The rest goes to the government. And then another policy is an artificial exchange rate. This is more difficult to understand, but essentially if the exchange rate was 1,000 pesos per dollar, the exchange rate they used to liquidate our grains was 400 pesos per dollar. So, in between the exchange rate and their withholding tax, we get about a third of the value of the crops. Circumstances for farmers have become progressively more and more difficult over the past 20 years."
How does it feel living with 140% inflation, I ask Murchison.“150%," he corrects me. “Inflation goes up by 10% per month. The consequences of these economic policies are now palpable in the inflation rate.
“There's a big problem with exchange rates. You can't import products. You can't travel abroad because they don't allow you to buy dollars. It isn't easy to buy foreign currency.
“But the biggest losers with this type of inflation are poor people. The middle- and upper middle-class always find means to hedge inflation, be that through buying bonds or indexing prices or more elaborate routes, but people who live off a salary, which is the vast majority, don't have any protection against inflation.
“But Argentina, you know, has had inflation for most of our history. We are used to living with inflation. Other countries would have exploded if they had to deal with what we have to deal with. But we have to find another way. Successive governments have spent more than they have and then borrowed money to pay the deficit.
“Our foreign debt now stands at $400 billion and we are in a position where nobody will lend us money. And because they can't get any money abroad, they've had to print it. This is how we get to this unsustainable level of inflation.
“So we are having to face reality. And that is what happened with this election. People are tired. People stopped trusting the government. They realised that the road we were on was leading us nowhere. This is a vote for a big overhaul of the economy, something the new president, Javier Milei, has promised."Trump label is lazy
Milei describes himself as a radical libertarian and an “anarcho-capitalist”. He has been compared to Donald Trump (in fact, Trump was quick to congratulate him on social media: “I am very proud of you. You will turn your country around and truly Make Argentina Great Again!”).
Murchison says calling him “Argentina's Trump" is lazy. “There are similarities. He is very outspoken, and like Trump his character can be quite aggressive and he can be quite coarse in his speeches. But I think Milei is more intellectual than Trump. I think he believes he's a liberal, a real libertarian. He believes in markets. He fervently believes in free trade.
“Trump is more of a nationalist. His support base is in the American hinterlands where his America First approach gets him that nationalistic vote. Milei has a different speech. He says, ‘I'm going to let the markets do the work. I'm going to let people invest. He wants the private sector to grow. He wants growth outside of government and the public sector."
“The politicians have reached the end of the road; they cannot fund the deficit any more and the only way out is fiscal austerity. To eliminate the debt, we have to live with what we have. But it's going to be difficult.
“Many prices were artificially held back or subsidised by previous governments. But this new government does not believe in controlling prices. So, for instance, subsidised energy prices will now be liberated, which will, of course, push inflation even higher."
Within days of taking office, Milei administered economic shock therapy. He devalued the peso by 50%, cut subsidies and public works tenders and said he would chop nine government ministries. However, he also said he would double social spending for the poorest.
“But with any hard medicine, there is, of course, a limit," Murchison says, “because there is a real threat of and a potential for a social uprising. And that is why I think it was such a smart move from the new president to increase social spending to allow the most vulnerable to absorb the economic shock. We must be alert and on guard and see how this plays out in time."
What does he hope happens now?
“As a citizen and as an agriculturalist, I hope we will manage to reduce the percentage of the GDP of government, that we will see the private sector grow, that there will be new investment and real growth. I want to see the taxes come down for the production sector so that it can reinvest in the economy. We are willing to wait because we know there is no magic wand, but ultimately we want to see that.
“It's going to be very hard. There's no magic here. It will be difficult for the next two or three years to see the benefits of reducing expenditure."
♦ VWB ♦
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