Cristina prepares to defy gravity

SHE owed her crushing victory in a presidential election in October to the economy’s vigorous growth and to public sympathy over the sudden death last year of her husband and predecessor, Néstor Kirchner. Cristina Fernández inaugurated her second term as president on December 10th still dressed in widow’s black and glorifying her husband’s name almost as of a deity. Her message was triumphalist. Contrasting Argentina with Europe and the United States, she crowed: “They govern with growth targets for the financial sector …and we govern with growth targets for work and employment.”

Those words may come back to haunt her. Ms Fernández is starting her second term in very different circumstances from the first, back in 2007. Argentina’s hectic growth was built on a weak currency (a legacy of default and devaluation in 2002), booming world demand for its agricultural commodities, strong growth in neighbouring Brazil, and a huge increase in government spending.

Those tailwinds have now died down, or risk doing so. World commodity prices are no longer rising. Brazil’s economy has stalled. After years of high inflation at home the peso is no longer weak, and extravagant subsidies mean there is little or no scope for further fiscal stimulus.

The government still denies that inflation is a problem. For years it has fiddled the numbers: officially, inflation is just under 10%, but independent economists put it closer to 25%, even though many energy and public-transport tariffs have long been frozen. Ms Fernández did admit that Argentina has a “competitiveness problem”. But the government’s solution looks to be a retreat into mercantilism, restrained by hints of realism.

In November officials announced timid steps to cut subsidies that now amount to 4.2% of GDP. Some large firms, along with richer households, must now pay closer to the true cost of energy. Even so, to balance its books, the government will have to turn to the money markets during 2012, thinks Miguel Kiguel of Econviews, a consultancy. One sign that it is preparing the way is Ms Fernández’s appointment of Hernán Lorenzino, who is respected in financial markets, as economy minister.

But these steps have been overshadowed by a tightening of controls aimed at curbing capital flight. In October the government ordered mining and energy firms to repatriate all their export dollars and citizens to justify every purchase of foreign currency. Tax inspectors were put in foreign-exchange bureaus. Guillermo Moreno, the thuggish secretary for internal trade who has persecuted independent economists for their inflation estimates, has been put in overall charge of foreign trade too. Some importers have already been required to become exporters as well if they want to get hold of dollars.

Lower growth can probably be sold to Argentines provided that other countries are doing worse. The opposition is weak, divided or co-opted. But austerity, if it comes, will require Ms Fernández to adjust her political alliances. The trade unions have been warned that demands for big pay rises will be met by curbs on the right to strike. Ms Fernández reminded private businesses that they have done very well in recent years, and warned them not to “spit at heaven”. Having regained a congressional majority in the election, the government is now pushing through a measure to regulate newsprint, which arouses fears in newspapers that have been critical of the Kirchners.

In 2008 when Argentina’s output briefly shrank, the government balanced its books by nationalising private pensions. What might it take next? The potential targets are neither so easy, nor so rich. The risk now is that inflation and a rising current-account deficit will trigger a rush to buy dollars and a downward spiral of devaluation and price rises like the one that scarred the country in the 1970s and ‘80s. Ms Fernández’s government will hope that its controls can stave that off, at least until new finds of shale oil and gas can be developed. But one way or another, things look likely to get rougher in Argentina.