Argentina: Macri's Presidency: A Major Shift in Economic Direction

Mauricio Macri assumed the Presidency of Argentina on 10 December, promising change – and on economic issues there has already been a substantial change of direction.

Macri has moved fast to end the protectionist controls of the Kirchner regime in order to stimulate economic growth and create a more business-friendly climate. The peso has been allowed to float and currency controls abolished. Export taxes have mostly been removed or at least reduced, farming quotas eliminated, and income taxes lowered. Negotiations have also been resumed with the ‘hold-out’ bondholders in an attempt to resolve Argentina’s debt crisis and regain access to the international credit markets. Argentina’s national statistics agency (INDEC) is undergoing radical reform to end the manipulation of data (the IMF formally censured Argentina in 2013 for the unreliability of its government statistics). Macri has also sought to remove the domestic media controls imposed by the Kirchners, appointed two new judges and overturned some of the appointments rushed through by Christina Fernandez de Kirchner in the last weeks of her administration. Macri has selected some well-qualified people for key posts, including Susana Malcorra from the UN as his Foreign Minister and the widely experienced Alfonso Prat-Gay as his Finance Minister. He has also begun to realign Argentina’s foreign policy links away from Venezuela and Iran and more towards the US. This change in international relations and economic direction is well illustrated by the fact that Macri plans to attend the annual World Economic Forum in Davos later this month, which both Kirchners studiously avoided.

So far, the international response has been positive. But there are risks: the abolition of currency controls has led to an immediate devaluation of the peso by almost 30%, eating into people’s purchasing power and potentially lowering consumer demand. Whilst the business community and particularly agricultural exporters have been encouraged, there have already been some street protests – and Macri has had to promise to maintain social services and some of the price controls on basic products imposed by the previous regime. Macri’s aim will be to generate employment growth through increased exports and business enterprise, including inward investment, whereas the Kirchners imposed currency and trade controls to boost domestic consumption and foster national industries alongside a strong welfare programme. It will be a difficult balance for the new government to maintain – and memories of former President Fernando de la Rua having to flee the Casa Rosada by helicopter, when devaluation of the peso in 2001 led to the near collapse of the financial system in Argentina, remain firmly in the collective memory.

Peronism, as a left-wing, populist movement that has held sway in Argentina for much of the last 70 years, is by no means down and out. The election results were very close (51.4% to 48.6%), prompting Macri’s opponent, Daniel Scioli, to claim ‘almost a tie’. The Peronists hold a majority in the Senate, the largest bloc in the Chamber of Deputies and 15 out of the 24 provincial governorships (though not the crucial Governorship of the Province of Buenos Aires, home to nearly a third of Argentina’s population). Cristina de Kirchner was a sore loser, refusing to attend Macri’s swearing-in ceremony and rushing off to her home in Rio de Gallegos – the first time since the restoration of democracy in Argentina in 1983 that an out-going President has not personally handed over the sash of office to his/her successor. She has threatened to continue to be active in politics – and Macri may find it difficult to get legislation through Congress (or even to amend or remove existing legislation, including the 90 or so, last- minute measures rushed through Congress in her last week as President). So far, Macri has been able to operate by Presidential decree since Congress is in recess but times may be more difficult in the future.

Macri’s economic reforms will be painful in the short-term but necessary if he is to lift Argentina out of the economic rut that the country finds itself in.