Argentina’s new president has to clean up predecessor’s mess

LET’S CHANGE – Cambiemos – led by former Buenos Aires Mayor Mauricio Macri, won Argentina’s presidential run-off by less than 3 per cent of the popular vote. Headlines in Europe, the United States and Latin America heralded the opposition coalition’s victory as marking a reversal of the ‘pink tide’ – the swing to the left that has dominated South American politics for the past two decades. Some even suggested that Mr Macri’s election would transform the continent’s role in international relations. This enthusiasm is overstated, writes World Review expert Dr Joseph S. Tulchin. Mr Macri, while himself a moderate conservative, is part of a broader coalition whose brand of politics is far more progressive than his own. Based on his direct experience as mayor of Argentina’s capital, he is also well aware of the real accomplishments of the previous governments over the past 12 years. By using the windfall profits from historically high commodity prices to fund social benefits, the governments of Nestor Kirchner (2003-2007) and his successor and widow Cristina Fernandez de Kirchner (2007-2015) managed to pull millions of Argentinians out of poverty and the margins of society. To simply pull the plug on these programmes would make the country ungovernable. Mr Macri will have to strike a delicate balance between policies designed to slow inflation and bring Argentina back to the international financial markets, allowing the country to attract the capital and investment it needs, while preserving enough of the Kirchners’ social safety net to keep the least privileged off the streets and the country’s powerful labour unions from going rogue. In foreign policy, Cristina Kirchner’s anti-imperialist rhetoric may have been inflamed, but it touched a deep vein of anti-US feeling among the Argentinian public. The election of a new president has done nothing to change this. While President Macri can jettison his predecessors’ populist rhetoric, he cannot afford to be seen as cosying up to Washington. Thus, what we are likely to see in the short run are announcements of possible policy adjustments rather than any wholesale reforms. To appreciate the challenges Mr Macri faces, one must understand the mess that Cristina Kirchner left behind. The slowdown in China’s economy, the world’s biggest consumer of soybeans, brought about a drop of roughly one-third of the price of soybean oil and soybean meal since 2011, of which Argentina is the world’s biggest exporter. This resulted in a disastrous drop in budget revenue. Rather than adjust to this reality, the Kirchner government insisted on printing money. Costly energy subsidies and welfare benefits were maintained, while export taxes were increased on agricultural commodities that had already come under international price pressure. The tax hikes crushed producer profits, prompting widespread hoarding of commodities, lower output and less investment in agriculture. This year’s fiscal deficit is expected to widen to 6.5 per cent of gross domestic product – a level previously reached only during periods of severe crisis. Part of Mrs Kirchner’s populist-nationalist stance was her refusal to negotiate with hedge funds holding defaulted Argentinian bonds – the so-called holdouts. Even after the holdouts won a US lawsuit in 2012, she pilloried them as ‘vulture funds.’ Her obduracy cut Argentina off from the international monetary system. To extricate Argentina from its current fix, the Macri government will need to settle with the holdouts, cut export taxes, lift restrictions on foreign exchange and get the national petroleum company to increase production. None of this can be done quickly. The pace and timing of lifting administrative controls will require a delicate touch. For a more in-depth look at this subject with scenarios looking to future outcomes, go to our sister site: Geopolitical Information Service. Sign in for 3 Free Reports or Subscribe.

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