From the lex blog at the Financial Times
Three decades ago the cult German book Christiane F. (made into a gritty film with a score by David Bowie) captured the horrors of teenage drug abuse in 1970s Berlin. If only Argentina's very own Cristina F understood the dangers of subjecting her adolescent country to fiscal and monetary addiction today.
On Tuesday, President Fernandez announced she is seeking re-election in October for another four-year term. Re-election is pretty much assured, and what should be done when she wins is clear. Sadly, Ms. Fernandez shows no desire to kick the habit of her whole career.
She will almost certainly win because the economy is booming -- gross domestic product was 9.9 per cent higher last quarter than the year before. Export earnings rose 30 per cent in 2010, according to the national statistics institute. But the government is also giving the domestic economy regular shots in the arm. Public expenditure jumped 30 per cent year on year in the first quarter. Incredibly, given the surge in tax revenues, the government will rack up a fiscal deficit this year.
No wonder inflation is estimated to be twice the official 10 per cent rate, resulting in negative real interest rates. This is where things get messy. Whereas neighbouring Brazil tries to keep the real down, Argentina, in spite of a similarly hot economy, actually supports its somewhat less expensive currency, boosting domestic purchasing power. The country has run a trade surplus since 2002, but that is expected to turn to a deficit in the second half of the year, according to the Economist Intelligence Unit. Those who can are moving money abroad.
High commodity prices mean Argentina would be booming now even without state stimulation. President Cristina F should allow her country to feel a more natural high. Anything less and serious withdrawal lies ahead.
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