“In 2014, the currency devaluation and inflationary spike dented the president’s popularity and eroded perceptions of her government’s economic competence.”

Curtains for ’s Kirchner Era M. VICTORIA MURILLO

ristina Fernández de Kirchner, the third please voters. Deteriorating economic conditions Peronist to be elected president of Argen- will make it harder for any successor to Fernández Ctina since the democratic transition of de Kirchner to adopt left-wing policies, even if he 1983, is approaching the end of her second term. or she wanted to. Her presidency followed that of her husband Nés- The surprise of this final act is that she has man- tor Kirchner (2003–7). After a dozen years with aged to keep the political initiative, moving to reg- one Kirchner or the other at the helm, Argentina ulate the oil sector, reform telecommunications, is facing a presidential election in October with and revise the civil and criminal codes. A lame- considerably more uncertainty than the past two, duck president in the last year of her mandate which Fernández de Kirchner won in overwhelm- could easily have lost that capacity for action, es- ing landslides. pecially in the context of an economic slowdown, There is no clear front-runner this time. How- increasing unemployment, and high inflation. Ad- ever, any of the three candidates with a higher ditionally, she lacks a loyal successor—a candidate probability of winning is likely to steer the next with a good chance of winning the next election administration toward more moderate economic and sustaining her brand of politics, known as policies, including some kind of fiscal adjustment, Kirchnerism, into the future. and a stronger emphasis on controlling crime. The Kirchners have often been classified as part of a REMAKING shift to the left in , though the ap- Néstor Kirchner was inaugurated in 2003, when plication of that ideological category to them has Argentina was starting to emerge from its deepest been questioned, given their own pragmatism and economic crisis since the Great Depression. Dur- that of their party, the Peronist party. Yet there is ing their dozen years in power, the Kirchners built no doubt that none of the three most likely suc- a coalition with dramatic actions that reshaped the cessors to Fernández de Kirchner can be identified political scene. In economic policy, these included with the left. debt restructuring, the expansion of redistributive The challenges ahead are difficult. The com- social policies (such as noncontributory pensions modity boom that allowed the Kirchners to expand and cash transfers for children whose parents do public spending and redistribute through social not have formal employment), and the national- policy seems to be reaching an end. If resources ization of the country’s largest oil company, YPF, dwindle, the legacy of a fiscal deficit and a two- which was expropriated from the Spanish com- tier exchange rate will most likely bring the next pany Repsol. The Kirchners also oversaw the administration toward retrenchment, especially prosecution of those responsible for human rights given the failure of price controls to restrain infla- violations that occurred during the military dic- tion. Thus, the next president is likely to face more tatorship, procedural changes for Supreme Court limited room for action in economic policy mak- appointments, and the expansion of rights for citi- ing, and will have a more difficult time trying to zens of different sexual orientations, including gay marriage. A major change to media laws expanded M. VICTORIA MURILLO is a professor of political science public access but also introduced new regulations and international affairs at Columbia University. She is the against concentrated holdings, particularly affect- author, most recently, of Political Competition, Partisanship, and Policymaking in Latin America (Cambridge University ing a major media conglomerate that opposed Press, 2009). Fernández de Kirchner’s administration.

56 Curtains for Argentina’s Kirchner Era • 57

The Kirchners’ bold policy initiatives were ac- 54 percent of the vote. Argentina had experienced companied by similarly striking rhetoric and sym- high levels of economic growth in the seven years bolism: the national bicentenary celebrations, free before that election, with the exception of 2009, television access for all soccer matches including when it was hit by the global recession. Growth the World Cup, the first Argentine satellite sent to produced higher fiscal revenue, which allowed for space, and more. They inspired a renewed belief in policies of social redistribution that reduced pov- the capacity of politics to change the status quo after erty and inequality while fostering a consumption Argentineans had taken to the streets in 2001 and boom that benefited large swaths of the popula- 2002 demanding that politicians resign en masse tion. Although the Kirchners’ support had eroded amid economic turmoil. Moreover, the government in the 2009 midterm elections due to a decline in has been responsive to public opinion shifts even economic performance and a long conflict with while pursuing its radical policy agenda. For in- agricultural producers over taxation levels, her re- stance, as concern over crime increased in 2014, election in 2011 was overwhelming: The runner- the government sent a bill for a new criminal code up, Socialist Hermes Binner, received only 17 per- to Congress. It was announced on national televi- cent of the vote. sion that the measure would require the expulsion By 2014, though, spotty clouds marred the sky. of foreigners caught committing crimes, reversing The economy had been slowing down in the past a previously liberal immigration policy. two years, but growth in 2014 turned negative, The branding of Kirchnerism is not unique in and at the end of the year even the official statis- Argentina, whose politics has a tradition of per- tics (known for being unreliable) announced a de- sonal brands. Peronism has long survived Juan cline in economic activity and a rise in unemploy- Domingo Perón, who was ousted in 1955 by a mil- ment. The fiscal accounts were also in the red. The itary coup and came back surplus achieved during the from exile to serve again as prior two administrations president for less than a year The question of succession has had turned into a deficit by before his death in 1974. Fernández de Kirchner’s sec- The party has adopted dif- become acute for the survival of ond term. The high cost of ferent names over the years, Kirchnerism as a political brand. energy and transportation but the Peronist brand is subsidies, which the gov- the most valuable one. Per- ernment had unsuccessfully onism rebranded itself in the 1990s when it shift- tried to reduce by cutting some subsidies for rich- ed to the right under Menemism, led by President er users at the beginning of her second adminis- Carlos S. Menem, and then again in the new mil- tration, was a leading culprit in this development. lennium when it shifted back to the left under the Meanwhile, the continuous improvement in Kirchners. Many of the same Peronist politicians Argentina’s terms of trade since 2003 seems to be played roles in both acts, even defending contra- over, putting more pressure on economic policy dictory policies. making and limiting any future administration’s It is difficult to believe that Kirchnerism has re- capacity for further redistribution. Commodity placed Peronism as the valuable brand. It seems prices started to decline in 2014; a record US soy- more likely that if another Peronist is elected as bean harvest, along with a slowdown of the Chi- president, a new Peronist coalition is likely to be nese economy, brought down the world soybean formed, and many Kirchnerist politicians will join price from $550 to $350 a ton between March and it. Given those expectations and the fact that elec- October 2014. Soybeans are the main Argentine toral results in the 2013 midterm elections were export staple and an important source of fiscal rev- not so favorable to the government, it is even enue and dollar reserves. A similar combination of more surprising that Fernández de Kirchner has factors was behind the decline in the world price retained so much political initiative in the waning of oil. Lower oil prices have reduced the attractive- months of her administration without an anointed ness of shale reserves in Patagonia, which the gov- successor. ernment seeks to exploit in association with Chev- ron and a Chinese oil company, hoping to develop ECONOMIC CLOUDS an alternative revenue source. Fernández de Kirchner was reelected in October Printing currency to cover government expen- 2011, a year after the death of her husband, with ditures had inflationary consequences in a coun- 58 • CURRENT HISTORY • February 2015 try where the consumer price index has risen at a could not receive better terms than those who double-digit rate since 2007 (the initial response did: the Right Upon Future Offers (RUFO) clause, of the government was to tamper with its statis- which expired at the end of 2014. tics). The limits of economic policies based on To allay fears of default arising from the weak- price controls, trade restrictions, and a dual ex- ness of Argentine institutions, the government had change rate led the government to seek access to issued bonds in different legal jurisdictions (Eu- credit in international markets, which had been rope, the United States, Japan) during the 1990s. closed to it since the 2001 default on the external Since 7 percent of creditors had not accepted the debt. restructuring offers, the door to litigation in for- By early 2014, Argentina had already paid its eign courts remained open. In 2012, Judge Thomas debt to international financial institutions and ne- Griesa of US District Court in New York City ruled gotiated a deal to pay compensation for national- in favor of one of the holdouts, NML Capital (a izing the Argentine operations of the Spanish oil subsidiary of US hedge fund Elliott Management), company Repsol. The finance minister was in dis- which had demanded full payment of the original cussions with the creditors of the Club of Paris, bonds plus interest. The Argentine government and the government, to increase the credibility of appealed the verdict up to the US Supreme Court. official statistics, had introduced a new consumer In June 2014, however, it refused to take the case, price index whose numbers were closer to those forcing Argentina to accept Griesa’s verdict. of private-sector indexes. In January 2014, the of- The New York district court ruled not only that ficial exchange rate had been allowed to devalue Argentina had to pay NML Capital in full, given by 20 percent, closing much of the gap between Griesa’s interpretation of pari passu—a standard the official exchange rate and the black-market contractual clause that means equal treatment rate. Subsequently, the govern- among equals—but also that ment drafted a bill to reregulate until it had done so, the gov- the oil sector, seeking to attract Both inflation and crime ernment could not pay the foreign investors to exploit the bondholders who had accepted shale-oil reserves discovered in are high on the list the restructuring plan. If it did Patagonia. of voters’ concerns. pay them, it would be declared in contempt of court. When an ATTACK OF THE VULTURES interest payment on the debt The government’s strategy to regain access came due in midyear, the New York bank serving to international credit was derailed by an unex- as paying agent received a deposit from the Argen- pected series of events in the US courts, which tine government, but did not pay the bondhold- drove Argentina into an unintended default on ers. Argentina found itself again in default. The its external debt in 2014. After his inauguration government claimed that paying the holdouts as as president in 2003, Néstor Kirchner responded Griesa ordered would trigger the RUFO clause be- to the default by initiating a process of debt re- fore its expiration at the end of the year, increasing structuring with bondholders that included their the final bill exponentially. In the meantime, new acceptance of substantial losses on the face value litigants have joined the case, raising the bill from of their holdings, and a swap of old debt for new $1.5 billion to $3.5 billion. bonds adjusted for inflation (based on the dubi- The Argentine government tried to raise sup- ous consumer price index) as well as bonds tied port internationally, pointing to the broader con- to GDP growth—which produced higher returns sequences of Griesa’s ruling for sovereign debtors. than expected, given the economy’s strong recov- On September 9, the General As- ery. More than 90 percent of creditors accepted sembly approved a resolution calling for a multi- the restructuring agreements in 2005 and 2010. lateral convention on debt restructuring by a vote Yet a minority of holdouts did not, including the of 124 to 11, with 41 abstentions. On Septem- so-called vulture hedge funds that bought Argen- ber 26, the UN Human Rights Commission con- tine debt in secondary markets at fire-sale prices, demned the holdout investors in Argentine debt, betting on bigger profits through litigation. To citing the dire consequences of the ruling for the persuade bondholders to accept the deal, the re- nation’s economy. Meanwhile, the International structuring agreement included a provision stip- Capital Market Association made a proposal for ulating that creditors who had not participated new bond contracts to include collective action Curtains for Argentina’s Kirchner Era • 59 clauses, which force restructuring on all creditors toral following to be a viable candidate in the next when a supermajority agrees to it. The group also presidential election. Moreover, there is a legacy proposed a clarified interpretation of the pari pas- of difficult Peronist successions. When Perón died su clause to prevent another ruling like Griesa’s. in office in 1974, he was succeeded by his wife At home, the government started a “motherland and vice president, Isabel, who had no real politi- or vultures” campaign, blaming economic deteri- cal experience. The country descended into po- oration on the hedge funds. The Argentine Con- litical unrest, which opened the door for a brutal gress passed a law shifting the bond payments to military dictatorship that took over in 1976. After a domestic bank, but no bondholder would accept the return of democracy in 1983, the first Peronist payments. As Central Bank reserves dwindled, do- president, , was blocked in his at- mestic expectations for a currency devaluation in- tempt to run for a third term despite a constitu- creased, bringing the black-market price of the US tional ban on a second consecutive reelection. Me- dollar to almost 16 pesos, compared with the offi- nem did not trust his party’s candidate, Eduardo cial exchange rate of about 8.5 pesos. In response, Duhalde—his former vice president and political the government strengthened controls on imports rival—who lost the election to Fernando de la Rúa and exports, which further hurt economic activ- of the (UCR), the traditional ity, and floated domestic debt linked to the official rival of the Peronist party. exchange rate, which paid very high interest rates De la Rúa would not be able to finish his term and weakened the appetite for the black-market in office. He resigned by the end of 2001, as the dollar. As a result, by November 2014 the black- country descended into a deep political and eco- market exchange rate had decline to 13 pesos, nomic crisis. Since his vice president had resigned since larger buyers preferred dollar-linked bonds earlier, Congress selected Duhalde as provisional to black-market dollars. president in January 2002 to finish the end of the term. In the 2003 presidential election, Duhalde BRAND SURVIVAL supported the candidacy of a little-known gover- 2014 was a difficult year for from nor from Patagonia, Néstor Kirchner, seeking to the beginning. In late 2013, police strikes had prevent Menem from returning to power. Menem led to riots in many cities of the hinterland. A and Kirchner finished first and second, respective- heat wave—along with electricity price freezes— ly, in the first round. With polls showing that he pushed energy demand beyond supply, generating would lose a runoff decisively, Menem withdrew— shortages that lasted for days and provoked wide- leaving Kirchner the victor with less than a quarter spread protests in the metropolitan area of Buenos of the vote. Aires. The 20 percent devaluation in the currency Once in power, Kirchner built a strong coalition at the start of the year triggered a spike in infla- that twice elected his wife to the presidency with- tion, which was forecast to reach 40 percent for out any need for a runoff—she obtained a plurality the year, according to private-sector estimates. As of more than 40 percent of the vote in 2007 and an the government sought to control inflation, it im- outright majority in 2011—the two thresholds set posed wage ceilings for collective bargaining in the by the constitution for avoiding a runoff. But now, formal sector—so that real wages reversed their facing the constitutional ban on a second consec- positive trend since the recovery of 2003. Work- utive reelection, Fernández de Kirchner does not ers in the informal sector, which constitutes up to have a loyal candidate to succeed her. Moreover, 40 percent of the economy, fared worse. The pub- past experience—including Kirchner’s political lic mood turned sour. Two-thirds of respondents isolation of Duhalde after consolidating his pow- disapproved of the government’s management of er—underlines the importance of this choice. It is the economy, and more than half expected their particularly meaningful if Fernández de Kirchner income to be eroded by inflation, according to sur- plans to return in 2019, following the example veys by the polling company Poliarquia. of her neighbors: Chile’s Michelle Bachelet (who Against this stormy background, the question returned to the presidency in March 2014 at the of succession has become acute for the survival head of a center-left coalition, succeeding a right- of Kirchnerism as a political brand. Néstor Kirch- wing president) and ’s Tabaré Vásquez ner could anoint his wife, a longtime senator, as (who won a November 2014 runoff to succeed his successor. By contrast, Fernández de Kirchner José Mujica, a member of Vásquez’s own Broad has no loyal successor with a large enough elec- Front coalition). 60 • CURRENT HISTORY • February 2015

Menem planned to stage a comeback for a third es the government for eroding the separation of term in 2003. Yet not only did he fail to win the powers and permissiveness toward corruption, election—many of his followers climbed aboard but these slogans have not proved to be electorally Néstor Kirchner’s bandwagon. Indeed, these Per- effective. onist politicians even supported a reversal of Me- Emerging from the 2001 crisis, a new party ap- nem’s policies. Much like Menem at the end of peared on the center-right: the Republican Pro- his administration, Fernández de Kirchner is fac- posal. Its candidate, , has been the ing judicial investigations into her assets, part of mayor of since 2007. He is a former a money-laundering case involving a millionaire businessman who led Boca Juniors, one of the businessman who once served as her husband’s country’s two dominant soccer clubs. He has tried driver. After leaving office, both Menem and de la to expand his organization beyond Buenos Aires, Rúa spent many hours testifying in court—a fate looking for popular candidates in the richest prov- that the current president would prefer to avoid. inces of the hinterlands. At the national level, sup- port for Macri’s presidential candidacy has been JOCKEYING CONTENDERS growing to levels similar to Scioli’s. Within Fernández de Kirchner’s political coali- In 2013’s midterm legislative elections, a new tion—the Front for the Victory (FPV)—there are party called Renewal Front emerged around the many politicians trying to position themselves for candidacy of in Buenos Aires prov- the open presidential primaries in August 2015. ince. Massa had served as Fernández de Kirchner’s The strongest contender is , a former cabinet chief until 2009, when he became the FPV vice president under Néstor Kirchner and current mayor of Tigre. However, in 2013 he broke ranks governor of Buenos Aires province, which is home with the government and campaigned on a center- to almost 40 percent of the Ar- right platform for a list of leg- gentine population, making it islative candidates in Buenos the largest electoral district. Argentine politics Aires, which won a plurality of Scioli, a former powerboat rac- the vote. At the time, support er, was introduced to politics by has a penchant for for his presidential candidacy Menem, and is not trusted by personal brands. in public opinion polls reached Fernández de Kirchner. Yet he is a third of respondents, but it the most popular of the poten- had dropped to levels similar to tial candidates within her coalition, supported by those of Scioli and Macri by the end of 2014. around a quarter of the electorate. He has always been a moderate and is projecting a shift to the VOTER ATTITUDES center-right, in contrast with the current discourse As 2014 drew to a close, polls showed a three- of the government. He seems the likely candidate way race between Massa, Macri, and Scioli, which for the FPV, though most analysts expect that he may be decided in a runoff. Attitudes toward will be forced to accept many Fernández de Kirch- Kirchnerism are a good predictor of current voting ner loyalists in the party’s lists of legislative can- intentions. Voters who support the government didates (elected by closed list proportional repre- prefer Scioli, moderate voters who do not support sentation), and may even have to accept one as his or oppose the government are more inclined to successor in the governorship. vote for Massa, and those who dislike Fernández The uncertainty of the next election is height- de Kirchner and her policies perceive Macri as the ened by the fragmentation of the opposition. The clearer alternative to her, according to surveys by UCR collapsed at the national level after the resig- Poliarquia. nation of de la Rúa in 2001, though it remains a Who are the voters supporting or opposing crucial electoral force at the provincial and munic- Kirchnerism? Support is higher among less edu- ipal level. The vacuum created by its erosion has cated voters and residents of the poor suburbs been occupied by many smaller parties, including around the city of Buenos Aires, whereas opposi- a coalition of the UCR, the Socialists, and smaller tion is more intense among older and more edu- center-left parties, called UNEN, which has several cated voters, and especially among those living aspiring presidential candidates but none with a within Buenos Aires. In other words, the tradi- strong national following. The main focus of this tional Peronist electoral base seems to be firmly coalition is on republican institutions. It denounc- behind Kirchnerism, thanks to social policies of Curtains for Argentina’s Kirchner Era • 61 redistribution. Yet those votes are not enough to the RUFO clause has expired. She has denounced give Scioli a victory, since they amount to only a the funds, but she also denounced Repsol after third of the electorate. Attracting independent vot- nationalizing its oil assets, and later negotiated ers is crucial for each of the three candidates. compensation with the company when seeking Economic developments in the coming months foreign investment for the exploitation of shale- will be key to the elections. Fear of new riots as oil deposits. She could make a similar concession the 2014 holiday season approached led the gov- on this occasion, hoping to change the mood of ernment to adopt preemptive policies, including markets, since even a short-term credit eupho- the distribution of handouts and plans for more ria can improve her chances of shaping the 2015 repressive measures—vacations for the security election. The opposition, so far, seems more re- forces were canceled and a new law made it a sponsive than proactive. crime for the police to go on strike. The govern- If Fernández de Kirchner gains the upper hand, ment has also taken to denouncing labor unions, how can she use a last spell of influence? If her which started striking when real wages did not goal is coming back, she may try to impose her keep up with inflation. loyalists on Scioli. Yet the Peronist ability to re- In 2014, the currency devaluation and infla- group around any Peronist in power might mean tionary spike dented the president’s popularity that she would be better off with a victory for the and eroded perceptions of her government’s eco- right-wing Macri. Leading the opposition against nomic competence. Both inflation and crime are him could help her deal with an unruly Peronism, high on the list of voters’ concerns, which explains which can be both a legislative veto bloc and an Massa’s campaign emphasis on crime and the gov- instrument for social mobilization against a non- ernment’s proposal to revise the criminal code. Peronist president. A Peronist such as Massa or However, a majority of voters prefers “change with Scioli would have an easier time winning a runoff continuity,” and two-thirds still claim that their in- and attracting her followers to join the bandwagon come is sufficient to meet their needs, according to of a new Peronist coalition. Poliarquia surveys. In any case, Fernández de Kirchner’s economic legacy will be uncertain. Her successor will face UNCERTAIN LEGACY a more difficult international and domestic en- Despite her lame-duck status and economic vironment. Declining terms of trade and a larger difficulties, Fernández de Kirchner has not lost government debt could take a toll on the budget. her political creativity. In late 2014, Congress Subsidies will continue to weigh on the deficit, passed a new oil law and debated bills proposed and voters will not be happy to pay more for pub- by the president to regulate telecommunications lic services. The cost of unifying the exchange and to revise the criminal and civil codes. Dur- rate is likely to be a devaluation that will make ing her years in power, Fernández de Kirchner exports more competitive, but will be unpopular was able to adopt ideas both from the opposition with voters who face falling real incomes. If vot- and from her own coalition in order to show her ers remember Fernández de Kirchner for better capacity to deliver effective policies. The obvious times, that will set a high bar for her successor— next challenge for her is to decide whether to ne- but perhaps not high enough to bring her back to gotiate with the “vulture” hedge funds now that power in 2019. ■