Will Argentina revert to a non-country for local and foreign investors if Cristina Fernandez wins

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Argentina’s populist former president Cristina Fernandez de Kirchner — who is nominally running for vice-president, but is the indisputable No. 1 on her ticket — is leading in most polls for the Aug. 11 primaries, and for the October presidential elections.

If her ticket wins and ousts the current president, Mauricio Macri, Argentina will sink into an even deeper economic crisis.

That’s my conclusion after getting internal statistics from international financial institutions. They confirm what some independent Argentine economists have been saying for a long time.

The figures show that Argentina is an unviable country — a nation that spends much more than it produces. They also show that the bulk of the country’s current economic hardship is a legacy of the governments of late President Nestor Kirchner (2003-2007) and, his widow, Cristina Fernandez (2007-2015.)

Venezuelan president Nicolás Maduro and former Argentine President Cristina Fernández de Kirchner

Consider this: Out of Argentina’s population of 44 million, there are only 6.7 million private-sector employees and 2.3 million self-employed workers who are paying for 15.3 million people subsidized by the state, including public employees, pensioners and people who receive government subsidies.

In other words, about 9 million workers who don’t work for the government maintain 15.3 million who are paid by the government. No country on Earth that can afford such government largess in the long run.

By comparison, neighboring Chile has a much healthier mix of public and private workers. About 6.6 million people work in the private sector, while there are only 1.1 million public workers and 1.5 million pensioners. No wonder Chile’s economy has grown much more than Argentina in recent decades and that Chile has been more successful in reducing poverty.

In the United States, there are 142.4 million people working in the private sector versus 22.4 million public workers and 43.7 million pensioners. Much like in Chile, the number of people working for private employers is much larger than those maintained by the state. Again, it’s no surprise that the U.S. economy has worked better than Argentina’s.

Alejandro Werner, the head of the International Monetary Fund’s Latin America department, told me the IMF has no official statistics on Argentina’s ratio of public and private workers, but basically confirmed the figures I showed him.

“According to various studies, Argentina has less than one private-sector worker for each public employee or pensioner paid for by the state,” Werner told me in an interview. “Chile and the United States have more than two private-sector workers for each worker paid for by the state.”

What’s most troubling about Fernandez’s resurgence in the polls — aside from the fact that she is charged with pocketing millions from government contracts — is that she has duped many Argentines into believing that she has a magic formula to improve people’s living standards.

During the Kirchner governments, Argentina almost doubled its public spending, from 27 percent of the country’s gross domestic product in 2006 to about 40 percent in 2015. But that was because of a steep rise in world commodity prices, which produced the biggest economic bonanza in Argentina’s recent history.

Instead of spending that windfall in improving educations standards, building roads and bridges, and saving for a rainy day, the Kirchner governments gave away massive social subsidies. And when world commodity prices returned to their normal levels, Cristina Fernandez left a bankrupt country.

In trying to return to power, Fernandez has anointed a presidential candidate — Alberto Fernandez, who is not related — to run against Macri.

Macri shares part of the blame for Argentina’s current crisis for not having dismantled the Kirchner governments’ bloated state apparatus. Fearing a social explosion, he opted for a gradual reduction of state subsidies. When the Turkish economy collapsed in 2018 and investors fled from emerging countries, Argentina could no longer pay its bills and had to ask the IMF for a $57 billion rescue loan.

But at least Macri knows what needs to be done — and may do it if he wins a second term. He would also get more support from international investors than his rival. Fernandez, on the other hand, is offering Argentines the fantasy that they can happily live beyond their means, which will make the current crisis much worse.

Source: Miami Herald – Oppenheimer

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