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Argentina: President Macri’s political and economic reforms continue apace

Argentina’s new President, Mauricio Macri, came to power on 5 December 2015, promising change – and he has set in hand an ambitious programme of political and economic reform.

Internationally, he has refocussed Argentina’s foreign policy away from former President Cristina de Kirchner’s dalliances with left-wing socialist regimes and more towards traditional Western allies. It was significant that Macri attended the World Economic Forum in Davos at the end of January, which the Kirchners had routinely avoided. His new approach has earned him the promise of a state visit by President Obama on 23-24 March and already visits from Italian Prime Minister, Matteo Renzi, on 16-17 February and on 24-25 February from French President Francois Hollande (which resulted in the signature of over 20 bilateral co-operation agreements). Discussions at Davos with British Prime Minister, David Cameron, also promised a broader relationship, not constrained by disagreements over the Falkland Islands: a UK trade delegation to Argentina is planned for the autumn.

Domestically, Macri has appointed a strong Ministerial team to his Cabinet, who have the confidence of their international counterparts. He has also sought to tackle the endemic corruption and political cronyism that Peronism characterised. Already, some 21,000 public sector jobs have been cut with the probability of more, in large part to reduce the size of the bureaucracy but also to remove the dead wood of political sinecure posts (or “gnocchi”, local slang for people appointed for their political allegiance to posts where they do not have to work but still collect their salary). For example, Argentina’s UFO agency – the Commission for Aerospace Phenomena (CEFAE) – which produced just one report covering ten investigations in its 5 year life-time, has been abolished and the staff at the Kirchner Cultural Centre in Buenos Aires cut by 80%.

Economically, Macri moved quickly to open up Argentina’s ailing economy to the free market by lifting currency controls, allowing the peso to float, abolishing export taxes on key commodities, eliminating farming quotas and removing restrictions on imports. Rather than the protectionism of the Kirchner regime, he plans to reduce public spending, including social subsidies, and to encourage business growth and inward investment. Above all, he has sought to resolve the US court case that has prevented agreement on restructuring Argentina’s debt – see the immediately preceding news item on this website. On this there has been a major step forward with the decision by the remaining hold-out firms on 24 February to accept a repayment of US$5bn. Macri still has to repeal some domestic legislation when Argentina’s Congress reconvenes on 1 March and raise $15bn in new loans to pay off creditors from the 2001 default. But resolution of this dispute will allow access once more to the international financial markets and end Argentina’s pariah status in the global economy. IMF’s CEO, Christine Lagarde, has praised the direction of Macri’s economic reforms and the Obama visit in March will undoubtedly presage Argentina’s return to a greater measure of international respectability.

Macri has also sought to improve the reliability and transparency of economic data within Argentina. Argentina was the first country to be censured by the IMF in 2013 for failing to report its economic performance accurately. The statistical agency, INDEC, is now under major reform and for the first time in recent years posted a trade deficit (of $3bn) for 2015 rather than the surpluses consistently announced under the Kirchners. Allowing the peso to float and abolishing the artificially high official exchange rate ended the black market at a stroke, albeit resulting in a 30% devaluation and a rise in inflation. The new figures showed that Argentina’s economy had contracted, with exports falling by 17% in 2015 and imports by 8%. Some international businesses are also having to retrench.  Citigroup announced its decision to pull out of retail banking and credit card operations in Argentina (and Brazil) and General Motors also decided to cut production by 50% in Argentina.

Macri’s socio-economic reforms have their downside. Devaluation and higher utility prices have led to an increase in the cost of living and a fall in disposable income, not fully countered by the lowering of income tax rates. Macri’s critics argue that he is intentionally generating higher unemployment to depress wages. On 24 February, his government faced the first national strike by public sector workers, protesting against the cutbacks in civil service numbers and the effect of inflation and the withdrawal of subsidies, particularly in the energy sector, on household budgets. Smaller protests have been met by a heavy handed police response. As a result, Macri’s popularity has already begun to wane dropping by 11% in a recent poll, albeit to a healthy 60% in terms of popular support.

Macri’s policies will only succeed if business growth drives down unemployment and creates opportunity for social advancement. But this is set within a period of global economic retrenchment, particularly in Argentina’s traditional export markets. If he is to win a second term (or even survive his first), Macri will have to take care not to alienate Argentina’s poor; he won the election by only a 3% margin. But so far, he is still within his honeymoon period and has won the plaudits of the international community for his reforms.

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