RISKY PARTNERS

Argentina faces a problematic last quarter as it must keep an eye on two giant troublemakers

Argentina has always been a country in which power is widely concentrated in the hands of the president. And some would argue that Néstor and especially Cristina Fernández de Kirchner have taken such concentration to the extreme.

Another interesting point about the current president is that — less than three months away from ending her presidential term — she is far from losing her influence. She has not become the weak, lame-duck president that those in the opposition had predicted and hoped for. Fernández de Kirchner still continues to hold the political initiative and it is quite evident that her ministers and deputies seem quite reluctant to take the initiative independently.

As for civil servants, they reflect this too, and depend too much on the orders of their political masters. Those enamoured with this system will tell you that it is the only way to make sure that the decisions taken respect the wishes of the voters, or — more dramatically — “the people.” But they are wrong.

The job of those who are voted into office and their politically appointed ministers is to set the guidelines and objectives for public policies, in line with their views which, in theory, are legitimized by elections. Then, their civil servants’ job is to implement them.

It is not a civil servant’s job to make foreign policy, but it is very much their responsibility to get things done, monitor relationships and make sure that existing policies are in good shape, and to sound the alarm when something goes wrong. But right now, either the alarms are not sounding accurately or nobody seems to be listening to them.

Lacking in vigilance?

Currently, criticism about a lack of vigilance in foreign policy will be immediately rebuked by pointing out to the government’s anti holdouts/“vultures” campaign at the United Nations or the battle against New York City judge Thomas Griesa. It should be noted that the battle at the UN — if won — would be a feather in Argentina’s international hat, but too late for this country. Griesa has already happened, and the situation is now more of a legal quagmire set for the next government to take over than a big target for the MFA’s efforts.

Meanwhile, although this writer hopes to be proven wrong, there are other clear and present dangers on the foreign policy front for Argentina, with the compliments of our main international partners.

One of them is Brazil. Its recent devaluations are likely to have a negative impact on Argentina, while there is also a strong pro-devaluation industrial lobby in Brazil which does not seem too friendly toward Argentina and would clearly prefer to deal with the European Union (EU) directly, leaving Argentina to fend for itself. The lobbying toward Dilma Rouseff is very serious, on account of her current political weakness and very low approval ratings. The combination of negative opinion polls and a precarious economy is likely to undermine any possible pro-Mercosur political determination in Dilma’s mind. That is, if there is any left. Especially because sectors in Uruguay and Paraguay seem to agree with Sao Paolo’s objectives, which are far from committed to Argentina’s views.

Chinese aspirations

And then there is China’s devaluations and its effects on Argentina. The immediate consequence will be that Chinese imports will gain competitiviness, so the prices of Argentine commodities will drop. However, perhaps these are not the most serious problems. CFK has — in a quite ostensive way — aligned Argentina with China as a “strategic partner,” which led to long-term contracts and commitments, not only in terms of trade or financial aid. But many international observers are now suggesting that the relevance of the recent devaluations is more political than financial.

It so happens that China occupies the second-highest position in terms of world trade, but its currency, the yuan, occupies a meagre ninth position in terms of internationally traded currencies, something that does not make the Chinese Government happy. Beijing seems determined to change that, in order to receive the prestige of being an internationally traded currency, on a par with the US dollar, the euro, the Swiss franc the Japanese yen or pound sterling. These are the five currencies included in the “basket” which makes up the IMF’s foreign exchange reserve assets, the Special Drawing Rights. China wants to join the prestigious club. The International Monetary Fund (IMF) though has closed the door on account of the fact that the yuan is not traded in free markets. As a result, say some, China might have attempted with is three devaluations in a row to show its capacity for damage to the world.

A currency war? We should hope not. It does not seem prudent to be the strategic partner of a nation at war — even if only financially — with the IMF and the big capitalist countries.

@andresfederman

CREDITS: BUENOS AIRES HERALD

CHINESE STRINGS

Whatever happens at the polls, some ties won’t break

In the last 12 years, first Néstor Kirchner and then Cristina Fernández de Kirchner have introduced drastic changes in Argentina’s foreign policy alignments.

It is quite noticeable how China and Russia have replaced the US and Europe as Argentina’s non-regional partners of choice — and the way in which this country has strengthened its ties with countries like Ecuador and Venezuela. All this is reflected in the formal political statements, in the narrative and — quite clearly — in Argentina’s trade, investment and financial relations.

There is a general agreement on the fact that China is not longer a communist state. But there is also a consensus that it would be equally wrong to say it is a capitalist state comparable to the US or the EU countries. It is also quite clear that, even if the cold war is something of the past, China — as well as, but not always together with Russia — competes in geopolitical terms with the US and its European partners. And that such state of affairs is very noticeable in Latin America.

China’s LatAm role

One of the most significant elements in this scenario is the new role currently played by Beijing in the region’s finances. In addition to its financial involvement in Brazil, China is nowadays the largest source of funding for Venezuela, Ecuador, and Argentina. And Chinese developmental banks’ investments in Latin America are larger than those of the World Bank and the Inter-American Development Bank.

Last week, Venezuela’s government triumphantly announced that it had obtained a new loan from the Chinese government. It was possibly the only piece of good news for Caracas, at a time when the country is facing a new crisis of violent demonstrations and lootings. However, the news on the loan was not too surprising — especially because the Chinese lender expects to be paid back in oil and not in cash.

Commodities exchange

A good percentage of the Chinese financing in Latin America is linked directly or indirectly to other deals that have to do with commodities — oil from Venezuela, agricultural exports from Argentina — or, as it happens like in Ecuador, with projects in which there is a significant involvement of Chinese companies.

Consequently, countries like Venezuela, Ecuador or Argentina are likely to have an easier life at the time of negotiating finances. Which, when combined with trade or investment, offer more room for flexibility. The more elements there are on the negotiating table, the easier it is to exchange concessions. Much more so if politics are part of the equation.

Financial negotiations with China often have an even more important advantage for these three Latin American countries, which share unorthodox economic policies that are often anathema for bankers. The latter’s priority is profit, and, therefore, they need to satisfy their boards, shareholders, auditors and regulatory authorities. By contrast, state negotiators are held accountable by political masters and their objectives. And these will often prioritize the political over the financial gains involved in a loan or a joint venture.

Future foreign policy

This has worked well for both China and Argentina during the Kirchners’ presidencies. So the question is what will happen after December 10.

Opinion polls suggest that the only two real competitors are the FPV’s Daniel Scioli or — through the intricacies of a two-round election — PRO’s Mauricio Macri.

In the last few months, Scioli has kept busy making clear his alignment with CFK’s policies. He was so successful that the purists within FPV who rejected him as a right-of-centre infiltrator shifted their narrative to a warm support. The fact that his vice-presidential candidate is Carlos Zannini —who is considered to be one of the government’s key strategists — has likely helped.

Scioli’s competitor Mauricio Macri has also been busy explaining that he agrees with, and will not drastically change, some of the basic tenets of this government’s policies. He mentioned social benefits and nationalizations. But he did not include foreign policy in that list.

In any case, drastic changes in Argentina’s international alignments would not be easy. True, it is relatively easy to change the rhetoric, or the statements in international organizations which a nation-state endorses. It is less easy to move away from financial commitments or trade patterns.

Argentina would need to find new lenders and new clients for its exports. None of this happens at short notice. So, whatever happens in the presidential election, Argentina’s ties with China are likely to remain strong for the foreseeable future.

@andresfederman

CREDITS: BUENOS AIRES HERALD