Declar­ing a “sta­tis­tics emer­gency,” Ar­gentina’s new pres­i­dent throws open the books

▶ ▶ Ar­gentina’s new pres­i­dent, un­like the old ld one, wants to talk ▶ ▶ Draw­ing “a line be­tween what’s true and d what’s a lie”

Bloomberg Businessweek (North America) - - Contents -

From a run­down govern­ment build­ing in Buenos Aires, a re­served econ­o­mist named Jorge Todesca is lead­ing a glas­nost of sorts in Ar­gentina. A few weeks af­ter win­ning Novem­ber elec­tions, Pres­i­dent Mauri­cio Macri—a wealthy busi­ness­man and for­mer Buenos Aires mayor—put Todesca in charge of the na­tional sta­tis­tics in­sti­tute. Macri cleared Todesca and his min­is­ters to talk freely about the na­tion’s eco­nomic data and just about ev­ery­thing else.

That may seem like the norm in other democ­ra­cies, but not Ar­gentina. The govern­ment of Macri’s pre­de­ces­sor, Cristina Fernán­dez de Kirch­ner, was sus­pected of ma­nip­u­lat­ing sta­tis­tics so much that in 2013 Ar­gentina be­came the first na­tion to be cen­sured by the In­ter­na­tional Mon­e­tary Fund for in­ac­cu­rate data. The then-fi­nance min­is­ter called the cen­sure “base­less.” Now, Todesca openly dis­cusses re­cov­er­ing the abil­ity to pro­duce be­liev­able sta­tis­tics: “This in­sti­tu­tion and oth­ers draw a line be­tween what’s true and what’s a lie.” Fernán­dez didn’t re­spond to re­quests for com­ment.

Macri, who was born into a wealthy fam­ily and was once pres­i­dent of the wildly pop­u­lar Boca Ju­niors soc­cer club, won a nar­row runoff vic­tory on prom­ises to at­tack cor­rup­tion and drug traf­fick­ing, erase poverty, and scrap heavy state con­trols over the econ­omy. Since tak­ing of­fice on Dec. 10, he’s elim­i­nated cur­rency con­trols, slashed ex­port taxes, and sacked no-show state work­ers.

In mid-jan­uary, Macri sent his top fi­nance of­fi­cials to New York for talks with cred­i­tors de­mand­ing pay­ment for bonds the na­tion de­faulted on in 2001. A set­tle­ment would let the govern­ment bor­row from for­eign in­vestors for the first time in a decade. “That trans­parency is go­ing to be crit­i­cal,” says David Tawil, co-founder of dis­tressed-as­set fund Maglan Cap­i­tal in New York. Un­der Macri so far, of­fi­cials at all lev­els are talk­ing about in­fla­tion, taxes, ex­change rates, and har­vests.

Fernán­dez, a life­long mem­ber of the pop­ulist Pero­nist move­ment, seized con­trol of vast sec­tions of the econ­omy, in­clud­ing the en­ergy and me­dia in­dus­tries. She used wel­fare, gen­er­ous state sub­si­dies, taxes, trade pro­tec­tion, and cur­rency con­trols to try to fuel growth. She left be­hind an econ­omy in tat­ters, with in­fla­tion up­wards of 25 per­cent, two years of stag­na­tion, dwin­dling re­serves, and es­ca­lat­ing bud­get deficits.

Fernán­dez’s min­is­ters rarely com­mented on any­thing in pub­lic. The fear of speak­ing up touched all lev­els of so­ci­ety, busi­ness, and govern­ment, says José Nun, who was sec­re­tary of cul­ture un­der Fernán­dez and Nés­tor Kirch­ner, Fernán­dez’s late hus­band and pre­de­ces­sor. “You have to un­der­stand that Cristina was above all a pop­ulist, and pop­ulists be­lieve they are the sole rep­re­sen­ta­tives of the peo­ple’s de­sire,” says Nun, who quit Fernán­dez’s govern­ment to join the op­po­si­tion and now runs the doc­tor­ate pro­gram in so­ci­ol­ogy at San Martín Na­tional Univer­sity.

In her eight years in of­fice, Fernán­dez com­mu­ni­cated via pro­lific tweet­ing, pro­nounce­ments on na­tional tele­vi­sion, and pro-govern­ment pro­gram­ming on state me­dia—but held very few news con­fer­ences. Mar­cos Peña, Macri’s 38-year-old cab­i­net chief, says his boss is al­ready rad­i­cally dif­fer­ent. Macri has called two news con­fer­ences in his first month. He’s also plan­ning to at­tend the an­nual gath­er­ing of the eco­nomic elite in Davos, Switzer­land, some­thing Fernán­dez never did.

“Unit­ing Ar­gen­tines has a lot to do with your word,” says Peña. “There has been al­most a mega-de­val­u­a­tion of the value of the word of the state or of politi­cians, and that’s one of the big­gest prob­lems this coun­try has,” he says, sit­ting in his sprawl­ing of­fice in the pres­i­den­tial palace, known as the Pink House.

Macri is try­ing to tone down a quar­rel Fernán­dez started. She clashed with farm­ers across the pampa, a Texas-size re­gion of fer­tile farm­land. She tried to jack up taxes on farm ex­ports to make farm­ers sell more grain do­mes­ti­cally. They faced her down with strikes and road­blocks, lead­ing to food short­ages. For years, she branded farm­ers as hoard­ers and spec­u­la­tors. “We never got any­one in her govern­ment to meet with us,” says Gabriel De Raede­maeker, whose fam­ily has 9,400 acres of soy, corn, wheat, and ranch­land near Cor­doba in the north­ern pampa. Says Raede­maeker, who’s vice pres­i­dent of a re­gional farm­ing as­so­ci­a­tion: “You can­not imag­ine how ex­haust­ing that bel­li­cose rhetoric was.”

Raede­maeker says he knows how the govern­ment muz­zled crit­ics. “Like clock­work, I would get a no­tice from the tax agency right af­ter be­ing quoted in the me­dia,” he says. “And I had to go down there with my ac­coun­tant and prove my in­no­cence.” Ri­cardo Echegaray, who ran the tax agency un­der Fernán­dez, de­clined to com­ment.

Macri has drawn crit­i­cism for by­pass­ing congress via a flurry of de­crees, in­clud­ing ap­point­ing two judges to the supreme court. “De­crees can be used, but not like this,” says Daniel Sab­say, a lawyer and an ex­pert on Ar­gentina’s con­sti­tu­tion. “It comes close to a vi­o­la­tion of the sep­a­ra­tion of pow­ers.”

Macri doesn’t con­trol congress, and he’ll need to form al­liances with the op­po­si­tion—in­clud­ing for­mer Fernán­dez al­lies—if he wants to gov­ern, says Sen­a­tor Juan Manuel Abal Me­d­ina, Fernán­dez’s for­mer cab­i­net chief.

“We think that some of th­ese changes are not right,” says Abal Me­d­ina, re­fer­ring to the cur­rency de­val­u­a­tion and other ini­tia­tives by Macri. “They might be good for the fi­nan­cial mar­kets in the short term, but over time they will erode ad­vances for the poor that we worked hard to achieve.” Pero­nists con­trol the se­nate and form the largest op­po­si­tion group in the lower house.

Macri’s chal­lenges be­come clear in the dimly lit of­fices of the sta­tis­tics in­sti­tute. He has de­clared a “sta­tis­tics emer­gency,” giv­ing Todesca the free­dom to make rad­i­cal changes. Todesca says it will take months just to get a re­li­able read on in­fla­tion—and he has op­po­si­tion. Among the in­sti­tute’s 1,700 work­ers are 200 del­e­gates from a fiercely pro-fernán­dez union who are try­ing to block his re­forms.

Todesca is used to get­ting heat. In 2011 the com­merce sec­re­tar­iat fined the econ­o­mist 500,000 pe­sos ($37,000) for pub­lish­ing his own in­fla­tion in­dex. The fine was over­turned in court. “I think that’s why the pres­i­dent chose me, be­cause I tried to speak the truth about eco­nomic sta­tis­tics and was pun­ished for it,” Todesca says. “It’s a com­plex task, but worth it.” �Michael Smith and Carolina Millán, with Pablo González, Dan Can­cel, and Char­lie Dev­ereux

The bot­tom line Pres­i­dent Macri has in­au­gu­rated a new kind of open­ness and re­form in Ar­gentina, but he still has to deal with op­po­si­tion in congress.

grow, un­rest in fac­to­ries and on con­struc­tion sites is spread­ing.

Worker protests and demon­stra­tions dou­bled last year, to 2,774, with De­cem­ber’s to­tal of more than 400 such in­ci­dents, set­ting a monthly record. The protests come as China’s slower growth crimps prof­its and con­cerns about poor pol­i­cy­mak­ing sap in­vestor con­fi­dence. “The in­crease in strikes and protests be­gan last Au­gust around the time of the yuan de­val­u­a­tion and sub­se­quent stock mar­ket crash and con­tin­ued to build dur­ing the fi­nal quar­ter of the year, as the econ­omy has showed lit­tle sign of im­prove­ment,” says Ge­of­frey Crothall, com­mu­ni­ca­tions di­rec­tor at the Hong Kong-based work­ers’ ad­vo­cacy or­ga­ni­za­tion China Labour Bulletin.

That’s wor­ri­some for China’s Com­mu­nist Party, which came to power in 1949 claim­ing to rep­re­sent the work­ing masses. In a sign of its ner­vous­ness, Bei­jing on Jan. 8 for­mally ar­rested four la­bor or­ga­niz­ers in Guang­dong, amid a broad crack­down on rights ac­tivists. “The sit­u­a­tion is not so good th­ese days,” Zhang Zhiru, a Shen­zhen-based la­bor cam­paigner, said in a text mes­sage. “It is not con­ve­nient to ac­cept in­ter­views from the for­eign me­dia.”

The govern­ment’s of­fi­cial un­em­ploy­ment rate for ur­ban work­ers is fic­tion: It’s re­mained largely un­changed at around 4 per­cent even when China’s econ­omy has dipped sig­nif­i­cantly in the past, as dur­ing the global fi­nan­cial cri­sis. Still, most out­side ob­servers es­ti­mate the real fig­ure may be a cou­ple of per­cent­age points higher (the Con­fer­ence Board’s China Cen­ter for Eco­nom­ics and Busi­ness puts it at about 6 per­cent). Wage growth has been out­pac­ing gross do­mes­tic prod­uct growth in re­cent years, and 10.7 mil­lion ur­ban jobs were cre­ated in the first nine months of last year, sur­pass­ing the of­fi­cial full-year tar­get of 10 mil­lion, ac­cord­ing to the Min­istry of Hu­man Re­sources and So­cial Se­cu­rity.

Cash-pressed com­pa­nies in con­struc­tion, man­u­fac­tur­ing, min­ing, and ser­vices are de­lay­ing pay­ing their work­ers, which is the No. 1 cause of la­bor strife and a likely pre­cur­sor to staff re­duc­tions, says Crothall. “Com­pa­nies have been de­lay­ing wages and cut­ting the work­week. They have tried th­ese dif­fer­ent mea­sures to keep peo­ple em­ployed. But now we ex­pect greater out­right lay­offs,” says Bei­jing-based An­drew Polk, se­nior econ­o­mist at the Con­fer­ence Board’s China Cen­ter. “This year I ex­pect it will be even more dif­fi­cult to find work,” says one 30-year-old toy fac­tory worker who hails from Hu­nan prov­ince. (He asked that his name not be used, cit­ing the sen­si­tiv­ity of the la­bor sit­u­a­tion.) “I am not sat­is­fied with my salary. But ev­ery­where’s pretty much the same.”

Ac­cord­ing to Chi­nese sur­veys of pur­chas­ing man­agers, com­pa­nies have been re­duc­ing staff for at least the past 11 months. A sep­a­rate pri­vate poll by Markit Eco­nom­ics and Caixin, a fi­nan­cial in­for­ma­tion me­dia com­pany, is sim­i­larly grim, with ser­vices show­ing their worst over­all per­for­mance in 17 months in De­cem­ber.

Lay­offs have been par­tic­u­larly high among ex­port-ori­ented man­u­fac­tur­ers in south­ern China’s Pearl River Delta. A sur­vey last Au­gust of 570 com­pa­nies in Guang­dong by the Hong Kong Univer­sity of Sci­ence and Tech­nol­ogy and Bei­jing’s Ts­inghua Univer­sity showed com­pa­nies had re­duced their work­forces by an av­er­age of 3.5 per­cent from 2013 to 2014, while low-skilled work­ers had been cut by 5 per­cent, says Al­bert Park, di­rec­tor of the HKUST’S In­sti­tute for Emerg­ing Mar­ket Stud­ies. Monthly wages for work­ers grew more than 10 per­cent an­nu­ally in 2013 and 2014. They grew less than 2 per­cent through the first half of last year.

Multi­na­tion­als op­er­at­ing in China’s big cities are try­ing to con­trol la­bor costs. About one-third of such com­pa­nies in an Oc­to­ber sur­vey said they planned to add staff in 2016. That was the low­est rate recorded since early 2009, dur­ing the global fi­nan­cial cri­sis, says El­ley Cao, a prin­ci­pal at hu­man re­sources con­sul­tants Mercer in Shang­hai. For­eign com­pa­nies said they plan to raise salaries on av­er­age by 6.9 per­cent this year, the small­est in­crease since 2009. Says Cao: “This will be the trend for the next few years.”

Lay­offs in China’s re­source and heavy in­dus­tries, suf­fer­ing from over­ca­pac­ity and red ink, are ex­pected to be par­tic­u­larly large. Of­fi­cials have said cut­ting ex­cess pro­duc­tion is a pri­or­ity, in part to help re­duce haz­ardous smog. “China should put un­yield­ing ef­fort into re­struc­tur­ing by elim­i­nat­ing out­dated ca­pac­ity and for­bid­ding the con­struc­tion of new ca­pac­ity,” Premier Li Ke­qiang said on Jan. 4 in Shanxi, one of the top coal-pro­duc­ing provinces, the of­fi­cial Xin­hua News Agency re­ported. The govern­ment should take “a com­bi­na­tion of mea­sures” to deal with over­ca­pac­ity and en­sure the “well-be­ing of laid-off work­ers,” Li said, with­out spec­i­fy­ing how.

The down­siz­ing in heavy in­dus­try

“I am not sat­is­fied with my salary. But ev­ery­where’s pretty much the same.” ——anony­mous 30-year-old Chi­nese toy fac­tory em­ployee

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