Argentina’s economy: The cost of truth

President Macri introduces a new bank note. But the state of Argentina’s economy is worrying

DURING her eight years as Argentina’s president, Cristina Fernández de Kirchner had a way of dealing with nasty facts: denying them. When annual inflation reached 27%, she said the number was wrong. “If it were as high as they say it is,” she scoffed in September 2012, “the country would explode.” But truth will out: by the time she left office last year, a 100-peso note—the most valuable—fetched just $10, less than a third of its level when she took office. Unwilling to admit this plunge, Ms Fernández (whose assets have been frozen by a judge probing currency transactions) refused to issue bigger bills. Queues formed at ATMs; with a capacity of just 8,000 notes, some machines had to be refilled twice daily and repaired monthly.

Mauricio Macri, the country’s president since December, prefers to cast a colder eye on reality. On June 30th a 500-peso note appeared at his government’s behest. The central bank won praise for producing it, with a nice image of a jaguar, so fast. It will be a blow to armoured-truck operators, who did well by moving wads of cash around the country. This helped Brink’s, an American firm in that business, to boost its Argentine revenues by 60% last year. But on the streets of Buenos Aires, the note is welcome. It will soon be possible to withdraw up to 2,400 pesos ($160) per transaction. “Hopefully it will cut queues,” sighed Mariela, a hospital worker, as she waited with 28 others to use a newly-replenished cash dispenser. “This is a waste of time.”

Not all Mr Macri’s clear-sighted moves are so popular. Some of his efforts to normalise the economy—such as easing currency controls and removing subsidies on electricity, water, gas and transport—have exacerbated the inflation he inherited. On June 15th INDEC, the national statistics institute, revealed that prices went up by 4.2% during May alone. These were the first figures published by INDEC since Mr Macri took office; he has been working to make the agency more reliable. Annual inflation figures will not be out until next June. Worryingly, the picture emerging in the freshly polished mirror is of an economy going the wrong way. New numbers show that growth, private employment, manufacturing and investment have all fallen since Mr Macri came to office. His country is officially in recession.

All this jars with a pledge in the first half of the year that Argentines would reap the rewards of his economic policies in the second. Some economists, including Ramiro Castiñeira of Econométrica, a consultancy, say the president was too quick to promise progress. He retorts that he was misconstrued. “Things don’t happen from one day to the next,” he said on July 2nd. “I didn’t say that all of Argentina’s problems will be resolved in the second half of the year.”

Ordinary Argentines seem equally cautious. According to a poll by Management & Fit, a consultancy, 37% believe the economy will recover in the coming months; only 28% think their own situation will get better. Mr Macri, whose approval ratings have fallen to 44%, is hoping that the statistics improve by the year’s end. If not, Argentines may end up trusting him no more than his predecessor.

The Economist |

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