Argentina Politics Update - 13 September 2023
Unfavorable US court ruling for Argentina, default vs. dollarization, income tax exemptions
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Politics
Argentina Owes $16 Billion in Expropriation Suit, U.S. Court Rules (Wall Street Journal, Reuters, Bloomberg)
New York judge Loretta Preska ruled that as a result of Argentina’s appropriation of energy company YPF in 2012, the country owes compensation to two YPF shareholders
Argentina will have to pay Buford Capital (which funded the shareholder’s litigation) $8.4 billion in damages, plus an additional $7.6 billion in interest
During the trial, Argentina argued that a big payout "would further burden a sovereign nation with a populace enduring pressing economic challenges and would far exceed Argentina's budget for many critical services."
Argentina is planning to appeal the ruling
YPF expropriation ruling: politicians trade barbs as shares fall (Buenos Aires Herald)
Axel Kiciloff, current Peronist governor of Buenos Aires province, was vice economy minister at the time of YPF’s expropriation and oversaw the process
Kiciloff declared the ruling to be “attempt at foreign intervention in our campaign”
Juntos por el Cambio (JxC) opposition coalition candidate Patricia Bullrich tweeted “Let Kirchnerism put up the money,” referring to the role the then-Kirchnerist government played in YPF’s expropriation and her own vote against the measure in 2012
Libertarian candidate Javier Milei, who has proposed re-privatizing YPF, called the ruling “a sample of how expensive the thieving, parasitic and useless political caste is for us.”
Juntos por el Cambio looks inland, boosted by triumph in Santa Fe (Buenos Aires Times)
JxC opposition candidate Maximiliano Pullaro won the governorship in the Santa Fe province on Sunday with 58.4% of the vote, an important opposition victory as JxC seeks to offset Milei’s inland popularity
JxC hopes this win will give them momentum ahead of other gubernatorial races and the October 22 general election; however, JxC should exercise caution as Milei won almost all provinces in the August 13 PASO primaries despite a series of JxC electoral wins
Macri backs Bullrich, distancing himself from Milei: ‘Patricia is my candidate’ (Buenos Aires Herald)
Despite recent praises of Javier Milei, former president and JxC coalition leader confirmed that his former security minister Patricia Bullrich was his preferred candidate in the October 22 elections
Milei attempts to troll Massa in letter about national budget bill (Buenos Aires Herald)
Milei requested that the 2024 national budget bill, prepared by Economy Minister Sergio Massa of the ruling Unión por la Patria (UxP) coalition, be postponed until after the October 22 elections, arguing that his proposed budget would look “radically different” from what Massa plans on presenting to Congress
In a letter written by Milei and addressed to Massa - not to current president Alberto Fernández - Milei “respectfully asks the Presidency to consider the possibility of temporarily waiving the obligation” established by the constitution to present the budget bill no later than September 15
Massa is reportedly not even considered responding to the letter
Milei the destroyer and fear of the unexplainable (Buenos Aires Times)
“Those paralysed with fear at the prospect of a Javier Milei administration believe a mentally unstable president lacking in a professionally organised structure to administer the state without political support in Congress will generate an institutional crisis that will result in a social eruption and his expulsion from office,” writes Agustino Fontevecchia
South American neighbours slam Argentina over river tax on Paraguay (Buenos Aires Times)
Argentina recently implemented a tax against commercial boats traveling through the Paraná River, which bisects the country with Paraguay
Brazil, Uruguay, Bolivia, and Paraguay called the tax a violation of international law, and presents “an unusual criticism in particular from Brazil and Bolivia, governments that tend to side with Argentina’s left-wing Peronist government on foreign policy.”
Economics
Argentina Shows the Limits of BRICS’ De-Dollarization Dreams (World Politics Review)
“Despite the Fernández administration’s efforts to resist the dollar’s hegemony, the greenback already plays a key role in Argentina’s economy,” writes James Bosworth
Despite known challenges of dollarization - which the country has experienced before - “Argentina is moving in the direction of greater use of the US dollar because its current economic and currency situation is unsustainable.”
Argentina needs to default, not dollarise (Economist)
“A future in which Argentina falls into disaster is more easily foreseeable than one in which policymakers see through the tough decisions required to make a success of dollarisation.”
Milei’s Path to Dollarization: Riddled with Doubts (Americas Quarterly)
Various economic analysts believe dollarization is not a feasible alternative for Argentina, given the country’s lack of dollars in either reserves or from foreign financial markets that are required for the change
Former director of the IMF Western Hemisphere Department Alejandro Werner believes that “The only thing [dollarization] would do is inject more Argentine securities into the hands of the international private sector, directly or indirectly, therefore further lowering the value of Argentine securities.”
Milei and his economic team argue that the over $200 billion Argentines have in savings and other deposits would be enough to implement the policy change which, according to Milei, would require about $60 billion
Dollarization does not come without its draws; it would make Argentina’s economy less flexible in adjusting to external shocks, and is likely to lead to a low economic growth path
Dollarization could “sow the seeds for a huge contraction and crash while deflecting attention from the tough work of fixing the economy,” says Mark Sobel, U.S. Chair of the Official Monetary and Financial Institution Forum (OMFIF)
Argentina spares millions from paying income tax as vote nears (Buenos Aires Times)
A new decree announced by Economy Minister Sergio Massa will exempt all workers earning less than 1.7 million pesos (US$4,857) per month from paying income taxes
Only 90,000 top executives and high-ranking managers, or less than one percent of total workers, will continue to have pay income taxes
The measure will be implemented in October, and is seen as another effort by Massa to shore up votes ahead of the October 22 general election
Argentina August inflation forecast at highest since 1991 (Reuters)
The Consumer Price Index (CPI) likely rose 11.8% in August - official statistics will be published today (Wednesday) by the National Institute of Statistics and Censuses (INDEC)
Argentina’s far-right front-runner is not the crypto candidate fans think he is (Rest of World)
“If [Milei] did replace the peso with the U.S. dollar, it may potentially mean a much less crypto-friendly Argentina,” writes Alex González Ormerod
Most Argentines use cryptocurrencies as an alternative savings option, so their money wouldn’t lose its value as quickly, meaning that in a dollarized economy, it is likely that crypto’s popularity will drop,
Lithium + Energy
Shell plans to boost oil production in Argentina despite price restrictions -executive (Reuters)
Shell aims to reach oil production targets of 50,000 bpd by the end of the year
Shell is the second-largest crude oil producer in Vaca Muerta, the country’s largest shale formation in the Neuquén province, behind YPF
Shell CEO in Argentina Ricardo Rodriguez noted that the country’s strict exchange controls and price freezes are impacting Shell’s competitiveness in the region, mainly compared to Brazil and Mexico
Argentina to reach top three lithium producer spot by 2027 (Mining.com)
Argentina has three active lithium mines and 38 projects under development
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