Opinions - 21.12.2016 - 00:00 

Argentina: One year with Macri

How does the political and economic situation look like one year after the presidential elections? A comment written in Buenos Aires by Nicolas Matthieu and Angélica Rotondaro, St.Gallen Institute of Management Latin America (GIMLA).
Source: HSG Newsroom

22 December 2016. Last November when arriving at Buenos Aires International Airport and attempting to withdraw money, there was literally nothing left in the ATM. No hay dinero it said. Two banks later, we were still unable to find some pesos – a result of a bank strike earlier in the week. Another social letdown in the era of Cristina Fernández de Kirchner and her late husband. After 12 years of them in power, it turned out that there wasn’t a lot of money left in the central bank, either.

Since then, many things have changed. The central bank is no longer the government’s ATM. Mauricio Macri, the opposition’s main candidate and leader of Cambiemos (Let’s Change) – a coalition of mostly centrist non-Peronist parties, is completing his first anniversary as the new president of Argentina.

For many, the election of Mauricio Macri marks a crucial moment in Argentina’s history. Hopes are high that the era of political populism under Cristina – as Argentines call the former president – and her late husband’s government has finally come to an end and that the doors are open for Argentina’s return to sustainable economic prosperity.

No smooth transition

The transition, though, has not been so smooth. It is clear that with an inflation rate which reached 43.4 per cent in the last twelve months, an official unemployment rate of 9.3 per cent and weak consumer demand cannot just disappear overnight. In a televised speech earlier this year, the new president talked of the many ticking bombs about to explode which the previous government had left him. While the new president might not be as telegenic and charismatic as his predecessor, one cannot deny that the scale of the task for the new government is, to say the least, challenging.

Like in science, in politics bombs need to be defused or they will explode. The new government tried to defuse some of these early on. Macri eased currency controls, reduced export tariffs on agricultural goods and initiated a complete overhaul of the national statistics office. The Arbolitos, illegal money exchange stands at Avenida Florida in the City of Buenos Aires, who had benefited from the high spread on the black market for years, went out of business.

Monetary policies

Under the Kirchners ruling, currency controls which were enacted to artificially curb inflation brought about massive overvaluation of the peso and the lowest foreign exchange reserves in years. Inflation statistics were widely discredited and led to a fall out with the IMF three years ago. Relations between the government and the agricultural sector were at times so bad that farmers would prefer to keep grain and soya beans in their warehouse rather than export them. In addition to that, the lack of investment in the country’s infrastructure is pushing the country’s energy network to a near collapse every summer and winter, especially in the country’s capital.

Certainly, one of the most ticking socioeconomic bombs was Argentina’s absence and ghost status in the international capital market for the last 14 years. In April the president reached a $9.3 billion deal with holders of Argentina’s defaulted debt, so-called vulture funds shunned by Cristina, restoring the country’s access to the capital market. These hold-out creditors did not accept a big write-down of debt on which the country had defaulted, as others did in 2005 and 2010, which lead to a new default in 2014.

But the consequences of defusing these bombs, to a large extent unavoidable, have proved painful and unpopular.

One of these bombs due to the new government’s clumsy handling nearly exploded. The rapid increase in utility prices during one of the country’s coldest winters led to the first round of pot-banging protests against the new government, seven months after the inauguration. But Argentina’s energy prices have been far too low for years. Under the Kirchners, the utility bill was massively subsidised, reaching about 12 per cent of its total spending in 2014 or nearly three per cent of GDP.

Quadrupling of gas prices

Argentina’s Supreme Court finally struck down the quadrupling of gas prices and the six-fold rise in electricity prices arguing that the government should have consulted the public, as set out by the constitution. Although an early setback for Macri, the ruling represents a vital sign of judicial independence and strong institutions as was the attempt to reform the electoral system and to implement an electronic voting program a few weeks ago.

In a country with strong social movements, with unemployment at 9.3 per cent and the economy in recession, labor unions mobilised massive protests in the streets of Buenos Aires in early September. Whereas Cristina might soon be standing trial for a massive corruption scandal, the new government needs good publicity. The legislative elections are due in October 2017.

Improving the everyday life

Success will depend on whether the new government can defuse more potential bombs and whether the people can feel the improvements in their everyday life. Macri would very likely do even better delivering some of the promises he made during his campaign, including getting a grip on inflation. In summer prices rose by only 0.2 per cent which indicates that inflation is finally slowing, a promising sign.

Not as much foreign investment has flown into the country as Macri expected since the country’s return to the markets. But for now the prospects remain optimistic. According to the IMF the economy will shrink by 1.5 per cent of GDP this year, but will grow about 2.8 per cent for 2017. After the decline in popularity in June the president’s approval ratings have fared better over the Argentine spring. Many agree that the economic policies under the Kirchners are very likely going to haunt the country for a bit more time.

The new government’s bold actions overall certainly help to improve international investor confidence, to ease the transition into a period of long-term economic prosperity and to fill the City of Buenos Aires’ many ATMs up again.

Picture: Fotolia / Henrik Dolle