Sign up for myFT Daily Digest to be the first to hear about Argentina’s news.
On Friday evening, Argentine Peronist President Alberto Fernández reshuffled his cabinet, which increased the power of radical Vice President Cristina Fernández de Kirchner and paved the way for increased public spending.
Tensions within the ruling Peronist bloc erupted after the center-right opposition coalition scored its best result in Sunday’s primary elections, beating the government by a margin of 9 percentage points. Cristina published an open letter accusing Fernández’s economic policies of the “political catastrophe” of the primaries and demanding changes.
The new appointments suggested that Fernández had ceded more ground to her powerful deputy, who herself served as president from 2007 to 2015 and is widely seen as the real power behind the throne.
The Peronists are fighting to avoid defeat in the November mid-term legislative elections, in which their senatorial majority is threatened.
Fernández’s key ally, Santiago Cafiero, was replaced as chief of staff on Friday evening by Juan Manzur, governor of Tucumán province, whom the vice-president had publicly offered for the post in her open letter published the day before .
“They faced each other in the worst possible way, and [this has] continued to escalate. The president threatened to govern alone and Cristina blamed him for the electoral failure, ”said political scientist Marcos Novaro. “They might try to fix the fences after that, but the damage is done.”
Other Fernández allies such as Foreign Minister Felipe Solá, Security Minister Sabina Frederic and Education Minister Nicolás Trotta left their posts, although Cafiero replaced Solá. Cristina’s letter also targeted presidential spokesman Juan Pablo Biondi, who resigned hours after its publication.
She argued in her letter that the president was following “an erroneous policy of fiscal adjustment” which “was undoubtedly going to have electoral consequences”. GDP collapsed 10 percent last year.
Blocked from international markets after its ninth sovereign default in 2020, Argentina is printing money to finance its public deficit as it tries to strike a new deal with the IMF. Inflation exceeds 50% per year, one of the highest rates in the world.
Economy Minister Martin Guzmán, who has come under heavy criticism from Cristina’s allies for trying to cut the deficit, has not been shaken by the reshuffle. Cristina has denied wanting to remove it, and Argentinian media have speculated that it will be kept in place until a deal with the IMF is reached.
“The government is now much weaker. Cristina’s wing could start to play a role in which they are sometimes part of the coalition and sometimes not. Or the coalition could break down for good, ”Novaro said.
The poisonous atmosphere within the Peronist ranks was highlighted by a leaked conversation this week in which one of Cristina’s close allies, finance committee chairwoman Fernanda Vallejos, is heard describing Fernández as a “squatter” ( in the presidential palace), which is “deaf”. , “Blind” and a “clown”. She then apologized for the comments.
Both Cristina and Vallejos have called for an increase in deficit spending, with Cristina arguing that Argentina has the option of increasing this year’s budget deficit by an additional 1.5 percentage points of GDP to increase spending ahead of the elections. .
Argentina is on track to end 2021 with a budget deficit of 5% of GDP, according to consultancy firm Ferreres. The extra spending Cristina demanded would push him above 6%, just as Guzmán tries to close the gap as part of a deal with the IMF to restructure $ 44 billion in debt.
“[Cristina’s] economic proposal is incompatible with IMF agreement and with long-term sustainability. She criticizes Guzmán because of his very modest austerity policies, which led to his defeat in the elections. But she must know that good politics and good politics do not always go hand in hand, and sometimes what is right is not what is popular, ”said policy consultant Sergio Berensztein.
Even though Guzmán survives as Minister of the Economy, he faces enormous challenges.
The long-term sustainability of Argentina’s finances is even darker than this year’s budget deficit suggests, as the 2022 budget will not include revenue from a one-time additional wealth tax imposed during the pandemic. The government also faces an additional deficit of three percent of GDP from the central bank’s deficit balance sheet.
“The president has two very complex years ahead of him. Argentina’s economy needs reforms to grow again, and the combination of Treasury and central bank debt could easily lead to further inflationary spurts, ”said Fausto Spotorno, chief economist at Orlando Ferreres.