Argentina: General Strike Embarrassment for Macri Administration: April 2017
Argentina's general strike on 6 April was an embarrassment for President Macri as Argentina hosted a major international forum in Buenos Aires. But support for the strike was not as strong as expected elsewhere in the country and Macri's economic reforms were warmly endorsed by the IMF representative at the conference. Argentina's economy may be inching out of recession but whether by enough to give Macri a boost in Argentina's mid-term elections in October remains to be seen.
Argentina hosted the World Economic Forum on Latin America in Buenos Aires on 3-7 April, the first such major international gathering since President Macri's accession to power in December 2015. But the boost to Argentina's image as a modern, business-oriented country emerging out of the economic purdah created by Argentina's debt default of 2001 and the populist social welfare policies of the Kirchners was dented by the general strike called by the trade unions on 6 April in protest at the social impact of Macri's economic reforms. Extra security had to be laid on for the delegates and force had to be used to clear some of the major thoroughfares in the city. The strike coincided with on-going pay dispute by teacher unions which had earlier closed many schools in the province of Buenos Aires. But not all unions joined the general strike and, although the city was brought to a general standstill, support elsewhere was more fragmented - and Macri had benefited from a sizeable rally of his supporters in the city on 1 April.
The IMF representative at the conference, David Lipton, IMF Deputy Managing Director, welcomed Macri's economic reforms which, he said, were showing signs of early, positive success. He expected Argentina's economy to grow in 2017-18 and its high inflation rate to continue to decline. Standard & Poor's also raised Argentina's credit rating from B- to B on the basis of Argentina's emergence out of recession. Figures from INDEC (Argentina's newly revamped government statistical agency) had showed marginal economic growth after an overall contraction of 2.3% in 2016. The Argentine Government predicted a growth rate of 3.5% in 2017, although independent analysts had lower growth expectations of around 2.8%.
Other economic indicators may be turning in Argentina's favour. Inflation around 40% in 2016 is expected to drop to 21% in 2017 and some sectors (agriculture, construction, shale oil/gas) are on the rebound. The Government hope to reduce the deficit of 4.7% of GDP in
2016 to 4.2% in 2017. But, despite an active travel programme by Argentine Government Ministers, inward investment has been slow to materialise. That said, after a 20 year hiatus, the UK Government has restored export credit guarantee support of up to £1 billion to boost British business investment in Argentina, announced by UK International Trade Minister Greg Hands in his visit to Argentina in late March. He also signed an updated Air Services Agreement to make it easier to establish direct flights between the UK and Argentina and announced the formation of a UK-Argentina Commercial Dialogue group to follow up the bilateral trade and investment commitments announced in the September 2016 communique.
Macri's tax amnesty scheme has, so far, been a success. Aimed at attracting back over US$400 billion of Argentine capital invested in overseas funds, some $98 billion was brought back within Argentina's tax regime by the end of December 2016, before a US-Argentina tax information agreement came into effect on 1 January 2017. It was estimated that 46% of Argentina's undeclared overseas assets were invested in the US. The tax amnesty ran until the end of Mach 2017 (the final figures are not yet in).
Macri's economic reforms have had a negative impact socially. Macri has laid off large numbers of public sector employees. The economic case for this was incontestable: public sector salaries and pension contributions amounted to one third of the total federal budget and one in three employees worked in the public sector but there has been no significant increase in private sector employment (and the numbers in employment have remained relatively static at 11.5 million people). Cuts in public subsidies for utility costs (gas/electricity/transport), after years of fixed prices, have raised prices for individuals; electricity charges, for example, have increased by 3-500%. Private consumption rates fell by 1.4% in 2016 showing that consumers were having to tighten their belts. Poverty levels also remained high. Not surprisingly, Macri's popularity ratings dropped to below 40% in February 2017.
Macri's reduction of export taxes should boost trade. Agricultural exports make up 50% of Argentina's total exports with China taking about 20% of the market, particularly in soy beans but Argentina is constrained by the recession in Brazil and by the free trade restrictions of Mercosur. Argentine exports have declined year on year since 2011. One potentially profitable area is in shale oil and gas. The Vaca Muerta region has sizeable reserves but development requires a break-even price of US$70-85 a barrel. Some reforms have proved popular: the removal of a 35% tariff on computer and tablet imports has made it possible for individuals to purchase computer technology more readily (but, of course, unions worry about the negative impact of such tariff removal on national manufacturing capability).
So far Macri has been able to get most of his reforms through Congress, despite not having a majority in either house, largely because of the weakness of the Peronist opposition. His predecessor, Cristina Fernandez de Kirchner, has been mired by corruption charges and has not been active politically since her departure. But Macri needs extra seats in Congress to secure his second term in 2019 - and for that he needs to create more jobs and business opportunities. These are proving slow to materialise.