The Bubble newsletter Sept 17

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  • An interesting newsletter from The Bubble this morning.

    Is dollarisation on the cards?

    I've long asked about this and I'm not surprised to find it now being discussed.

    Buenos Aires, September 17, 2018

    Happy Monday, everyone!

    And if we were to sum up the last few days in one meme, this is it:


    Because I would seriously like to know. Uncertainty grows as the IMF this morning says that the technical aspects of the deal with Argentina are close to being finalized. Just like we asked last week, is the worst part over? (No.) The US dollar exchange rate is once again above AR $40, Dujovne was hospitalized, we're apparently heading to a recession and on top of that there is a vicious killer bacteria terrifying the population. (True, it may be the media that's terrifying the population with irresponsible coverage but does anyone care at this point?) So grab a glass of fine malbec and read on. It may be Monday morning but it's five o' clock somewhere.

    This is what happened in the last seven days:



    President Macri had a good week. Because any week that doesn't end with a president escaping the Casa Rosada in a helicopter while the country is engulfed in flames is a good week. A little emboldened (just a little) by a Cambiemos electoral victory in Córdoba, the President said last week during a speech that without his government at the helm, “this storm would have destroyed the country to its very foundations, just like it happened 17 years ago.”

    Right before him, other senior government officials such as Vice-President Gabriela Michetti, Treasury and Finance Minister Nicolás Dujovne, Cabinet Chief Marcos Peña and the head of the Cambiemos caucus in the Lower House, Mario Negri, addressed an audience that included over 800 Cambiemos government officials from Buenos Aires.

    Macri explained that his administration was able to mitigate the impact of the economic crisis because “it has very clear convictions” and “a very strong relationship with the world.”

    “Never in its history has Argentina had a similar level of political support from the main world powers,” he indicated. “This will be ratified again in November, when the G20 Leaders Summit takes place,” Macri said at the Kirchner Cultural Center.

    The dark memories of 2001 were also present on the other side of the political spectrum last week. In a cutting interview with Spain’s El País newspaper last Monday, Senator Miguel Angel Pichetto criticized the Macri administration by saying “they implemented a policy of debt accumulation through Argentine bonds on the part of very volatile investment groups, a mistake we already experienced in 2000-2001 that we are committing again.” Read more.



    Settle down, senator. It's just an expression. We would never call you "the devil". In fact, we think that political wonks in Argentina who insist on comparing you to Frank Underwood from Netflix's House of Cards are probably taking things a bit too far.

    Anyway, last week Pichetto blamed the ongoing crisis in Argentina on errors of diagnosis and malpractice coming from President Macri since the very start of his presidential term in 2015.

    Given Pichetto’s role as the head of a significant non-Kirchnerite Peronist bloc in the Senate— which grants him the status of a central figure in Argentine politics—the parliamentary leader’s comments echoed through the Argentine political apparatus. They were especially significant given their possible ramifications during a time when the national government is depending on a Congressional consensus to pass key laws, primarily the 2019 National Budget.

    While the former Kirchnerista usually seemed to ally with Macri during the first 1,000 days of his presidency by supporting the majority of the laws proposed by the Macri administration saying that they were in the country’s best interest, the Peronist leader changed his tone last Monday. He emphasized that he was not surprised by the current crisis, blaming it on a number of Macri’s mistakes, including his move toward economic liberalization while other countries around the world increasingly adopted protectionist measures.

    “The government opted for a policy of optimism and gradualism, which in the long-run resulted in negative growth, and they implemented a policy of debt accumulation through Argentine bonds on the part of very volatile investment groups, a mistake we already experienced in 2000-2001 that we are committing again,” Pichetto emphasized. Read more.




    Oh, the drama! Remember how three weeks ago former President Cristina Kirchner's house in Calafate was raided by the authorities? Remember how she asked them not to damage anything? Well, they apparently didn't listen much (which I guess makes sense when you're a suspect but what do we know). So the current senator decided to do what she does best: YouTube videos. For 17 minutes, Cristina shows her home and how it was damaged during the 36 hours that her home was taken over by the authorities. True to her style, she angrily explains how her home was destroyed - while being pretty sassy at times - and goes after Bonadío and the media while casually dropping that her administration was pretty awesome and that Macri is a terrible president.

    In other Kirchner-related news, a date has finally been set for the so-called "K Money Trail". On October 30th, at the Comodoro Py Federal Courthouse, the case, which investigates whether there was a money laundering scheme set up to embezzle assets when Cristina Fernández de Kirchner was president, will begin.

    The accused with the highest profile is embattled businessman Lázaro Báez. A close friend of late President Néstor Kirchner when he was still governor of the Santa Cruz Province, Báez left his post at a provincial bank and quickly rose to prominence as a main government contractor in 2003.

    However, he fell from grace along with the Frente para la Victoria (FpV) party once Cristina left office. A few months after Mauricio Macri became president, in April 2016, Báez was put in pre-trial arrest as a result of his alleged involvement in the case and the judge’s belief that he could be a flight risk. He has been behind bars ever since.

    Despite the case being named after her, (the K is for Kirchner) the former President will not be one of the 25 people to stand trial. Turns out that, while Federal Prosecutor Guillermo Marijuán pressed charges against her in the early days of the investigation and both the Financial Information Unit (UIF) – the prosecutors’ unit tasked with investigating financial crimes – and the Anti-Corruption Office (OA) supported this decision, Federal Judge Sebastián Casanello rejected upholding the charges, arguing there was not enough evidence to do so. Read more.




    We don't want to depress you so we'll be brief and you can draw your own conclusions.

    First of all, Argentina’s inflation rose by 3.9 percent in August, according to a report released by the Indec statistics agency last week. The figure is the highest of the year and represents a 0.8 percent increase compared to the previous month, with the accumulated rate for the year reaching 24.3 percent.

    Moreover, the inter-annual rate now stands at 34.4 percent. September’s rate is expected to be even higher, as a result of the latest run on the peso that took place in late August and early September.

    Also, the Central Bank released a Monetary Policy statement that projected an upward trend in Argentina’s inflation due to the latest spike in the exchange rate. Given the almost unavoidable drop in consumption that will arise as a result of inflation, the Central Bank conceded that, throughout 2019, Argentina’s economic activity will likely “plateau”— a stagnation that has been forecast by a number of Argentine economists.

    The same statement also confirmed that the interest rate, in pesos, will remain at 60 percent until December. This rate was set by the Central Bank during the sudden currency exchange crisis that caused a few days of chaos in Argentina’s markets during the last days of August, after the peso crashed to a record low.

    Last but not least, the government categorically rejected it was negotiating a convertibility plan for the national currency, like the one that was implemented between 1991 and 2002 – with its already known and dramatic end, the collapse of the Argentine economy – and that is currently in effect in Ecuador.

    The question about the possibility took over the media cycle after Larry Kudlow, the current director of the Trump Administration’s National Economic Council, said in an interview with Fox News that US Treasury officials were “working on it.”

    In the interview, the anchor assured that “Argentine officials hate the International Monetary Fund (IMF) and would much rather be dealing with the US Treasury in some form,” and asked Kudlow if there was any chance that could happen.

    Kudlow assured it was already happening: “Yes, Treasury is deeply involved in this discussion, which is a great thing. As you and I learned, the only way out of Argentina’s dilema is to set up a currency board. The Peso links to the dollar, but you can’t create a single new peso. No money creation unless you have a dollar reserve behind it. That worked in the 90s, it brought down inflation and kept prosperity. That’s what they need, to do it again. And you know what? Treasury Department people are on it.”

    However, government sources told Noticias Argentinas agency that “Argentina is not negotiating any dollarization or anything similar with the United States.”

    Never a dull day in this country. We will be back next Monday with more.

    Have a great week, everyone!