Walter Molano | Argentina’s new line-up

President-elect Alberto Fernández presented his new cabinet last Friday. Although the market had been rife with rumours ever since his surprise performance during the primaries, the PSAO, on August 11, the final line-up took people by surprise.

Like his predecessor, the new chief executive tried to reduce the power of the Ministry of the Economy by breaking the role into five different positions.

Matias Kulfas, who was named development minister, will be responsible for the reactivation of the economy. He will work closely with Argentine industry, and particularly with the small and medium-sized enterprises, the PYMES — which are the backbone of the economy.

Daniel Arroyo will be the Minister for Social Development. His mandate will be to design and monitor social assistance programmes. Despite all of its fault, Argentina’s extensive social assistance networks are the main reason why the country did not explode into violence, as recently occurred in some of the neighbouring countries.

Claudio Moroni as labour minister has a mandate to deal with labour relations, a tricky role in Argentinam given the power of its unions.

Luis Basterra will be minister of agriculture. This is another important role, given that agriculture is the country’s main export. He will have to deal with the expected tariffs that will be levied on the agricultural sector.

The titular role of minister of the economy went to Martin Guzman. He is the Columbia Business School professor who gained prominence for his recent work on debt restructuring. His main objective will be the looming workout, but he will also have the final word in economic measures. Fernández said that the new team was designed to combat hunger, in other words the economic crisis.

The new economic team clearly enhances the management style and role of the incoming president. To begin with, it is a very Peronist cabinet, highlighting labour and social issues. Second, by dividing the Ministry of the Economy into five positions, Fernández clearly minimises the importance of any single individual. This is something that President Mauricio Macri tried to do when he took over, four years ago. It was also attempted by several other former Argentine presidents. They did it to avoid the creation of a super minister, who eclipses the president.

Argentina has a strong presidential tradition, and chief executives are loath to share the limelight with anyone. The problem is that, given the fragility of the Argentine economy, the presidents usually reverse their decision and return to an all-powerful economy minister in order to centralise all decision-making into a single individual.

The fragility of the Argentine economy is attributed to three major factors. The first is its enormous dependence on agriculture, a set of commodities with highly volatile prices that are subject to factors that are outside the government’s control, such as international demand and climatic variances. The second is weak fiscal institutions. Argentina’s taxing authority is poor, and the country is rife with tax evasion. At the same time, social expenditures are high. This creates a situation where the country is usually burdened with a large fiscal deficit and dependency on international capital—another volatile variable.

The third factor is federalist structure. Argentina is a vast country, with a relatively small population. The central government has little control over the provinces, but it is the main source of financing for most of them. These fragilities are the main reasons the country is constantly enduring economic crises, and it is also why Argentine presidents are often forced to concentrate the economic roles into one individual.

The new economic team also confirms the primacy of President-elect Alberto Fernández. He has close personal ties with all of them, reducing the role of Cristina Fernández de Kirchner and the Campora. Her allies were given the minor roles of minster of public health insurance agency and general counsel for the Treasury. It is clear that the two most powerful members of the economic team will be Guzman and Kulfas.

Fernández said that negotiations with the International Monetary Fund had already started several weeks earlier. Given that Guzman hails from Columbia University, it is said that former World Bank chief economist, Nobel Laureate and Columbia University Professor Joe Stiglitz is playing an important role in negotiating with Washington. His close ties with the Democrats could also be fortuitous if there is a change in the United States administration next year.

Guzman has said that he will try to finalise the restructuring in less than three months, in order to avert a hard-default on the foreign debt. The local-law debt will probably be restructured by decree.

It is said that Guzman is shooting for a two-year extension on all debt service in order to jump-start the economy; hence, the negotiations with international creditors may be more amicable than what many people believe.

Dr Walter T. Molano is a managing partner and the head of research at BCP Securities LLC.wmolano@bcpsecurities.com