Global Perspective

  • Argentina’s new government: fresh hopes, old problems

    March 11, 2016 07:25 PRESIDENT Mauricio Macri of Argentina, who was elected last October, has quickly set out to show how much his administration differs from that of his predecessor, Cristina Fernandez de Kirchner. Much of the attention has focused on its determination to end the country’s complex set of price controls, subsidies and exchange rate restrictions. But politically, the new government is walking on a minefield, writes World Review Expert, Dr. Joseph S. Tulchin. Mr. Macri’s first moves have been executive actions that do not require congressional approval. He ended the currency exchange rate controls, allowing the peso to float freely. The currency depreciated rapidly: a dollar could buy just nine Argentine pesos in December; by March it was worth more than 16. The domestic impact on prices is muted for the moment due to the summer vacation, but in March there will be a round of price increases on consumer products and public services that will cause more than a ripple of public discontent. To counter the inflationary pressure, Mr. Macri announced that his government would take a gradualist approach, bringing down the fiscal deficit in stages and seeking to curb inflation over a period of three years. In this, he specifically rejected the abrupt measures proposed by conservative economists in his government, who warn that his strategy will only prolong the social and political pain. The Macri administration also removed the tax on agricultural exports, leading to a huge jump in grain sales abroad. Most importantly, Economy Minister Alfonso Prat-Gay managed to work out an agreement with the hedge funds that hold defaulted Argentine bonds and had refused to participate in the country’s two debt restructurings. These so-called “holdouts” had essentially managed to exclude Argentina from the international capital markets. Argentina recognized 100 percent of the face value of the bonds and promised to pay about half of the total interest claimed by the holdouts. Though the deal means the principal holdouts – four U.S.-based hedge funds – earned huge profits on their original investment, it was considered a success for the government. Argentina can now raise the money it needs to pay for new economic measures. Still, the Argentine Congress will have to accept the settlement. Accomplishing that will not be easy. Over the previous 12 years of Peronist government, there was rampant depredation of public finances. From the president down, the state was used to extract millions of dollars for personal enrichment. In Transparency International’s most recent Corruption Perceptions Index, Argentina ranked 107 out of the 168 countries surveyed (Mexico, by comparison, ranked 97). Mr. Macri, who was mayor of Buenos Aires from 2007 to 2015, has not been tainted by scandal. The officials who moved with him from the city administration to the federal government are considered clean. More will be revealed about Mr. Macri’s attitude toward accountability, as well as his political smarts, when he puts together a coalition in Congress next month to appoint two judges to the Supreme Court. The new government also has to deal with the famously bloated Argentine bureaucracy. It needs to be streamlined. However, no policy can be implemented without cooperation from the middle and lower ranks of the bureaucracy. Pushing them too far, too fast would only destroy the government. There are already frequent press reports of government layoffs. Moreover, the social safety net constructed over the past two decades cannot be dismantled without fatal political consequences. Mr. Macri has said repeatedly that he understands this and will work to reduce poverty. However, as one of his chief senior appointments noted, the government is “more broken” than the new team had anticipated. For a more in-depth look at this subject with scenarios looking to future outcomes, go to our sister site: Geopolitical Information Service. Sign in for 3 Free Reports or Subscribe.
    Dr Joseph S. Tulchin
    Publication Date: 
    Fri, 2016-03-11 06:00

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  • Kim presses his luck with China in the Year of the Monkey

    March 08, 2016 07:40 THE CHINESE government must have expected trouble from its ally, North Korea’s strongman Kim Jong-un, on the occasion of the Chinese and Korean New Year, which started on this February 8. Perhaps that was why Wu Dawei, the Chinese foreign ministry special representative for Korean Peninsula affairs, was sent to Pyongyang on February 2, just before the end of the Year of the Sheep, writes World Review Expert Kati Kang. He carried three requests to North Korea’s supreme leader: establish a political dialogue with South Korea, go back to six-party international negotiations on your nuclear program and do not launch any missiles or atomic devices. According to a source in Beijing, Mr. Wu also conveyed a direct message from Chinese President Xi Jinping to Kim Jong-un: China cannot continue to deflect the international anger over North Korea’s antics any longer. The host listened, but obviously did not give a damn. As if in mockery of the Chinese, Kim Jong-un ordered a test of what looked like a long-range ballistic missile. It went off on February 7, 2016 – the eve of the Year of the Monkey. A firm believer that China is the biggest threat to his country (and hence his need for weapons of mass destruction), the pudgy dictator also canceled the New Year holiday celebrated by the two nations for a millennium – a joyful fiesta of family reunions over food and firecrackers to scare away evil spirits, and a time for men to gamble. Now in North Korea, the birthday anniversaries of Mr. Kim’s grandfather, regime founder Kim Il-sung, are supposed to supplant it as an official public holiday. The missile launch heightened tensions across northeast Asia. It was a defiant signal to the world, especially to the United States, that Kim Jong-un was his own man, neither controlled by China nor afraid of it. And if Washington wanted anything from North Korea, it should talk business directly with him. Beijing opposes Mr. Kim’s nuclear ambitions. It joined the international condemnation of North Korea in December 2015 after it allegedly detonated a hydrogen bomb – the blast occurred at an atomic weapons test site not far from the Chinese border. China’s Ministry of Foreign Affairs immediately reiterated its government’s long-standing policy that the Korean Peninsula must be a nuclear-free zone. Kim Jong-un replied to this – in his fashion. In January, North Korea’s leading daily Rodong Sinmun (Workers’ Newspaper) published a philosophical commentary full of cryptic allusions to the Chinese: while it is nice to receive aid from outside, North Korea is also fine without it; domestic products are the best and self-reliance is most important, it said. Another article observed that no one will help North Korea in the event of a nuclear war. And while “certain countries” suggest that North Korea remain calm and show restraint toward its enemies, they take a neutral position themselves in the struggle with capitalists and imperialists. The articles did not name any country, but the signal was clear: Kim Jong-un was not going to budge. North Korea’s economy is utterly dependent on China: roughly 70 percent of its total trade is with that country. If Beijing stopped this trade, the Kim regime would be doomed instantly. Yet the fact of the matter is that China has little influence on its client regime in Pyongyang. The Global Times, a Chinese government newspaper, observed with melancholy that the two nations are no longer friendly and that China finds itself under undue pressure from North Korea. It is not difficult to imagine the bitterness toward Kim Jong-un that Chinese officials mask behind such minced words. For a more in-depth look at this subject with scenarios looking to future outcomes, go to our sister site: Geopolitical Information Service. Sign in for 3 Free Reports or Subscribe.
    Kati Kang
    Publication Date: 
    Tue, 2016-03-08 06:00

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