The Week of February 29th, 2016

Care

1. Mauricio Macri’s monetary momentum

Argentina debt deal

Last year, Argentina elected Mauricio Macri, the center-right former governor of Buenos Aires province who has sought to revive the country’s struggling economy, which was ravaged by decades of populist policies under the philosophy known as Peronism. Already, Mr. Macri has lifted an unsustainable fixed exchange rate, scrapped devastating tariffs, restarted collecting economic data censored by Peronists, and begun to tackle massive inflation and a bloated bureaucracy. Argentina is expected to undergo a rough transition in the short term as they pursue these reforms, which require foreign lending in order to be sustainable. Unfortunately for Mr. Macri, Argentina defaulted on a massive debt of $95 billion in 2001, which destroyed their credit and forced desperate lenders sold the debt to “vulture funds” at extremely discounted prices. Argentina offered to repay a fraction of the debt, which would yield a large profit for the funds, but the vultures included some holdouts, which demanded a full repayment of the debt. The situation escalated late last year when Thomas Griesa, an American judge overseeing the settlement, ruled that Argentina had to reach a settlement with the holdouts before paying back other lenders, stalling all negotiations.

The election of Mr. Macri led Mr. Griesa to rule that Argentina was now acting in good faith and removed the injunction on debt payments. Argentina quickly settled most of their debts, which removed bargaining power from the holdouts. This week, the last main group of holdouts, led by investor Paul Singer, finally settled for $4.6 billion, less than a quarter of what they originally demanded. While this deal is a coup for a government struggling to rebuild credibility with world markets, there remains one last obstacle for the country: the “Ley Cerrojo” passed by Peronists, which prohibit deals with holdout funds and blocks the agreement.  If Mr. Macri passes the deal against domestic obstructionists, it could be a turning point for Argentina’s economy.

2. Electoral excitement

Super Tuesday

In the most consequential day of the American presidential primary season thus far, 12 states held Republican and/or Democratic nomination contests on Super Tuesday. It was a big night for respective frontrunners Donald Trump and Hillary Clinton, who each won seven states. Mrs. Clinton has now amassed 1052 delegates of the 2383 necessary to win, compared to Senator Bernie Sanders’s 427, who won four states Tuesday night, including his home state of Vermont. One the Republican side, Mr. Trump leads the pack with 319 delegates out of 1237 needed to secure a nomination. Senator Ted Cruz picked up three states, including his native Texas; and Senator Marco Rubio won one.

Tuesday night may have doomed Mr. Sander’s campaign. He struggled throughout February to gain traction with minority voters in larger states and now lacks a clear path to the nomination. On the Republican side, both Mr. Rubio and Mr. Cruz have done just enough to prove they are viable Trump-alternatives, so neither has a compelling reason to drop out. Mr. Cruz is not especially far behind Mr. Trump in the delegate count, but Mr. Rubio has better favorables going forward, including in his home state of Florida, a 99-delegate, winner-take-all bonanza on March 15th.

The results on the Republican side reveal a deeply dysfunctional GOP establishment unprepared to handle the unexpected rise of Mr. Trump. The party establishment has been trying frantically – and so far ineffectively – to stem Mr. Trump’s rise and is quickly exhausting its options. Prior to Super Tuesday, the most logical strategy for the establishment appeared to be uniting behind a single contender to challenge Mr. Trump. Now, many are positing that it may be better to keep several candidates in the race to split the vote and lead to a brokered convention.

A brokered convention could lead to several outcomes, none particularly desirable. Should the establishment step-in and nominate another candidate despite Mr. Trump arriving with a plurality of votes, it risks offending Mr. Trump and his supporters. Such a move could provoke a third-party run by Mr. Trump, all but handing the election to Mrs. Clinton and devastating down-ballot Republicans. Regardless of how the race unfolds, the party will have to reconcile fundamental differences between its constituencies if it is to survive.

3. Refugees removed, referendum rejected

Migrant issues in Europe

Crews guarded by police in riot control gear began demolishing a refugee camp on Monday near the port of Calais, a city in the northwest of France. Migrants and activists clashed with police as the evictions and demolitions continued throughout the day, precipitating the use of tear gas by the authorities. Makeshift homes in the camp were set ablaze, possibly by tear gas canisters, and migrants flooded out onto a roadway leading to the port of Calais, blocking traffic. By Monday evening the police had retaken the port road and arrested four people.

The prefecture of Calais defeated activists in a court battle last week, gaining authorization for the clearance of the camp. According to French authorities, migrants will be relocated to better living conditions in the northern part of the camp, away from the roadway leading to the port of Calais. The camp’s infamy stems from its reported role as a base for migrants hoping to illegally enter the United Kingdom by stowing aboard ships bound for the UK.

Despite French authorities’ claims that evicted migrants will be relocated to refugee camps with better facilities, Amnesty International and other aid organizations criticized the French government’s action and called on France and the UK to ensure the migrants’ safety. Reports thus far suggest that many evicted migrants have been given little assistance in finding new accommodations, and some have been reduced to wandering Calais with personal belongings and sleeping bags.

The people of Switzerland, by contrast, delivered a victory for migrants over the weekend. Voters rejected a referendum that would have instituted automatic deportation for any foreign national convicted of two minor crimes – such as speeding or burglary – within a ten-year period, or one major crime, such as murder. Additionally, the referendum proposed the expulsion of “Secondos,” or non-citizen children of foreigners born in Switzerland. Voters rejected the referendum 58.9% to 41.1%, dealing a blow to the anti-immigration, right-wing populist Swiss People’s Party, which controls approximately one-third of the seats in Switzerland’s parliament.

In France, refugees continue to struggle against an increasingly hostile government, as evidenced by the events in Calais. As various European nations demonize and criminalize migrants, the people of Switzerland took a humanitarian step this week, rejecting right-wing fear-mongering in favor of compassion and empathy.

4. Peruvian pipeline problems

Peruvian oil spills

Peruvian state-owned oil company Petroperu has been responsible for two oil spills in the Amazon in the last two months, with 2000 barrels worth of oil  leaking into the Chiriaco River on January 25th alone. Petroperu placed barriers to stop the oil from spreading further, but heavy rains rendered the barriers useless and carried the oil to the larger Marañon River. Petroperu initially denied the oil spill, but video footage of the Marañon River proved their protestations to be specious. The second oil spill occurred on February 3rd where 1000 barrels of oil were leaked and reached the Mayuriaga and Morona Rivers.

Germán Velásquez, director of Petroperu, tried to deflect responsibility for the spills, attributing the first spill to “earth movement” and the second spill to “extreme force.” Specifically, he claims that  a local professor had seen a lightning bolt land in the same area as the pipeline, supposedly damaging it. Despite Mr. Velásquez’s accounts, Manuel Pulgar-Vidal, minister of the environment, and the Organization of Environmental Evaluation and Supervision (OEFA), said that the oil spills are due to the poor condition of the Northern Peruvian Oil Pipeline. OEFA now demands that Petroperu completely replace the damaged sections of the pipeline and conduct extensive maintenance on all other sections of the pipeline.

So far, 3,500 people have been affected by the spill, with many reporting symptoms of oil contamination-related sickness. The Ministry of Health declared a state of sanitary emergency 23 days after the first spill, and sanctions and fines were placed on Petroperu. This is the the 20th oil spill in five years and the 12th in the last six months. Petroperu will have to undergo an expensive facelift if it is to continue operating.

5. Stimulating spending and suffocating speech

China cuts reserve ratio

In an effort to boost lending and spur economic growth, and for the fifth time this past year, China eased the reserve ratio requirement (RRR) by 0.5%. This simply means that banks can keep half a percent less on hand and can therefore lend out that much more in deposits. If half a percent seems inconsequential, consider the enormous reach of China’s central bank, the People’s Bank of China (PBOC), as a regulator of financial institutions and its ability to shape monetary policy in China. To put a number on it, this move will inject roughly 685 billion yuan ($105 billion) into the financial system. The ceiling was lowered via the PBOC, marking the fifth of such RRR cuts this past year. But this cut only brings China’s RRR down to a whopping 17% and still among the highest in the world.

China is sending a signal to the world economy that theirs is continuing to underperform and fall short of growth projections, as 2015 saw Chinese economic growth clocking in at 6.9%, the lowest since 1990.  Another concern is whether these cuts, which the PBOC is particularly fond of, will contribute to the devaluation of the yuan and destabilize China’s foreign exchange rate.

Perhaps China’s initiative to boost consumer spending is compensation for, and intentionally overlapping with, a much masses political crackdown that culminated last week with the public forced confessions from five missing Hong Kong booksellers. President Xi Jinping also spent the end of February on a highly choreographed “state of the media” tour, during which he read verbatim a Mao Zedong speech in front of adoring journalists. Mr. Mao would appreciate what Mr. Xi has done, minus the Western stimulus package.

Don’t Care

0. Republican reverses recommendation

Chris Christie

On Friday, New Jersey governor, ex-presidential candidate, and gluten enthusiast Chris Christie formally endorsed Republican front-runner, Donald Trump, for president of these United States. The surprise move by Mr. Christie sent shockwaves through the Republican establishment, as its greatest, or rather largest, member swore allegiance to Mr. Trump. The announcement dealt a strong blow to Senator Marco Rubio, the baby-faced last best hope of any Republican mildly interested in winning an election ever again.

Mr. Trump’s angry tirades against Mexican “rapists,” calls to ban Muslim immigrants, and his crude, albeit entertaining language, have earned him both adoration and scorn amongst American voters. Mr. Christie, like a Garden State driver on the New Jersey Turnpike, has done an abrupt U-turn from his previous position on the soaring Mr. Trump. In December, he lambasted Mr. Trump for his statements on Muslims, insisting that people like Mr. Trump “have no experience and don’t know what they’re talking about.” Now he asserts that “the best person to beat Hillary Clinton…is undoubtedly Donald Trump.”

There seem to be two possible explanations for Mr. Christie’s bizarre move. First, he could truly believe Donald Trump is a capable leader and the desired standard bearer for the party of Lincoln. Or, he has made a cynical calculation that by attaching his political wagon to the loud, orange front-runner he can gain a nod for vice presidency or some other political gift. In the end, it is highly unlikely that the two-faced, two-chinned, two-lane governor’s maneuver will get him anything but humiliation, now that he has become the largest mouthpiece of the worst hairpiece in America.

Jose Trejos, Dan Ruswick, Alexi Stocker, Alex Velasco, Daniel Sacks, and Edmund Bannister contributed