New Economic Reforms for Argentina
Mauricio Macri, leader of the conservative party and a proponent of free-trade and stronger ties with the United States, was elected as president of Argentina in November 2015. His victory was widely interpreted as a rebuke to the largely protectionist policies of outgoing president Christina Fernandez de Kirchner. During her second term in office, Kirchner imposed currency controls and trade restrictions that reduced productivity and decreased Argentina’s foreign currency reserves while also avoided the negotiation of a debt settlement with Argentina’s foreign creditors. As The Economist notes, it resulted in a ban on accessing international funds for the country. Import and export levels were also harmed when Kirchner’s administration artificially appreciated the Argentine peso relative to the American dollar.
Thousands of new bureaucratic posts meant for supporters and the implementation of subsidies on staple goods boosted her popularity at the expense of an indebted government, according to La Nación. Nevertheless, the fact that voters rejected her chosen successor, Daniel Scioli, in favor of Macri, suggests that the Argentinian people want serious economic reform.
To address Argentina’s poor economic growth, Macri lifted currency controls five days after his inauguration. As a result, the peso dropped to a record low of 14.80 pesos to the dollar as of February 16. Such a rate could help Argentina’s export industries, so unsurprisingly, the move has drawn support from agricultural unions, which represent the largest share of Argentine exports. The increase could help lessen the shock of the 0.75% contraction the IMF predicts for the economy in 2016.
Macri has also acted swiftly to address Argentina’s issues with its creditors. A 2012 United States court order impeded Argentina’s debt restructuring plans; however, in February 2016, the Argentian government announced it had made progress with drafting debt payment plans with some of its creditors. This move could signal that the country is reentering the good graces of the international finance community. Macri began the path of reintroduction when he recently attended the World Economic Forum, becoming Argentina’s first representative there in over a decade.
Macri’s quick pace of reforms has unsettled some. Unions fear that the currency devaluations and rising inflation—last charted by Bloomberg at 29.6%—will erode the standard of living, and numerous Kirchner-era subsidies have also been rolled back, which could impact the quality of life, though it will pump money back into the government budget. The layoffs of ten thousand public sector employees have also drawn scrutiny. While this move saves the government millions and increases the transparency of the bureaucracy, employment prospects look dim to those whose jobs were previously guaranteed by Kirchner. It falls to the current government to ensure that the short-term strain will lead to long-term gain.
A slumping commodities market and a weakening Chinese economy suggest that Argentina’s economic doldrums may continue. However, if Macri continues to demonstrate a willingness to make the difficult, but necessary, economic decisions, Argentina could be better placed to ensure a healthy economy than at any point in the past decade.