The results are in: in 16 days, only nine of which are working days, Mauricio Macri will become president of Argentina.
Of the many implications this has for the country, the short-term economic impact is the most pressing concern for many. In the short transition period that began yesterday, the president-elect will need to provide signals as to how his administration will manage a difficult economic climate, where existing internal problems are being deepened by low commodity prices and a slowdown in key trade partners Brazil and China.
During the campaign, the main Kirchnerist message was a warning that Macri would implement a swift liberalisation of the economy, including a sharp devaluation and brutal austerity measures that would hit workers and the most vulnerable hardest. Macri dismissed these claims as lies, part of a “fear campaign”, but failed to give any reassuring concrete information about his economic plans.
The central problem in Argentina’s economy – manifest in various symptoms and imbalances – is a shortage of dollars. Unable to borrow on international markets since the 2001 default, Argentina is reliant on its agricultural exports (especially soy) and foreign investment to receive the dollars it needs to buy imports and pay debt obligations. As these sources dried up following the global financial crisis, the government introduced currency controls and import restrictions to prevent a devaluation that would exacerbate already high inflation and threaten employment. It also expanded its battery of programmes designed to stimulate the domestic economy and protect low-income households. Plans such as Precios Cuidados, Ahora12, Procrear, and Progresar were added to existing energy/transport subsidies and regular above-inflation hikes in state pensions and the flagship Asignación Universal por Hijo welfare programme.
The series of measures was successful in so far as they staved off a full-blown economic crisis – itself an achievement given the country’s recent history – and helped protect the gains made since 2003 in living standards and social inclusion. But they didn’t solve the country’s structural problems, and they became increasingly unsustainable amid fresh external headwinds. The budget and trade balances will both end 2015 deep in the red, meaning Argentina is spending more money that it receives both internally and internationally, while the Central Bank’s reserves would be at a critical level if you remove the currency swap with China and money owed to importers.
No-one really questions that the economy today is in a tricky position – some prefer to call it a “ticking time bomb” – made worse by the government’s unwise decision to meddle with official statistics. The differences lie in who is to blame for the problems, and what should be done to fix them. We’ll focus only on Macri’s view here given that he will be taking the reins of the country.
The Economy According to Macri
Though he has avoided specifics, the Cambiemos leader and his team of economic advisers openly favour a much more orthodox approach than the outgoing administration. They blame the Kirchnerists for economic mismanagement and corruption, and see the solution centred around generating confidence among investors and in the market. Traditionally, in this vision, the state’s main role is to set clear rules and arbitrate, taking a back seat to the private sector in creating growth, investment, and jobs. Applied to today’s Argentina, that means broad measures such as:
– Reaching a quick deal with the vulture funds in the US so that the country can borrow money again;
– Devalue the currency so that exports are more competitive and remove currency controls to eliminate the parallel ‘blue dollar‘;
– Change the central bank’s charter to make it politically independent with a mandate to keep inflation low;
– Cut export taxes so that big agricultural companies sell the grain they have been hoarding (estimated at around US$13bn);
– Reduce government spending, especially on energy subsidies, to reduce the budget deficit and bring inflation down;
– Privatise any loss-making state enterprises;
– Re-establish links with the IMF so that Argentina can receiving financing (in exchange for accepting external influence over economic decision-making);
– Reform statistics office INDEC, to return credibility to official data and correct one of the outgoing government’s biggest mistakes.
– Relax labour market and financial sector regulations to allow businesses to operate with fewer restrictions (this is something that organisations like the IMF typically demand in exchange for financing).
So far, so neo-liberal. This was the basis of Scioli’s ‘fear campaign’: Argentina has gone down this road before, and it led to rising unemployment, inequality, and poverty, all of which reached a devastating peak after the 2001 collapse.
But the message of fear didn’t work, mainly because we are not in the 1990s any more. Macri is part of the new right that has emerged in Latin America – think Venezuela’s Henrique Capriles and Brazil’s Aécio Neves – as the counter-current to the ‘Pink Tide’ of leftist governments. This new ‘post-neoliberal’ right is described thus by Le Monde Diplomatique’s José Natanson: “It is post-neoliberal, because —at least in public— it does not reclaim the policies of open markets, privatisations, and deregulation typical of the ’90s. And it is new because it is clever enough to show a “social face”: in line with North America’s “compassionate conservatism”, it promises macroeconomic changes and tax reforms but maintaining the welfare systems developed over the last decade.”
The president-elect is clearly aware that the sort of economic adjustment his inner circle advocates will be intolerable to many, especially given Argentina’s recent history. After altering his discourse in July, Macri repeatedly indicated that he would not privatise YPF or Aerolíneas Argentinas, that he would protect workers and sustain – even expand – welfare programmes like the Asignación Universal por Hijo. He also pledged to begin the “largest infrastructure programme in the country’s history” and bring poverty down to zero, without explaining how either would be achieved in the current climate. He even made an oportune stop at the Qo-Pi-Wi-Ni protest tent on Av 9 de Julio, promising to end the land usurpation and discrimination facing indigenous communities in Formosa.
Of course, there is a huge difference between campaigning and being in office, and Macri wouldn’t be the first politician to backtrack on promises. To pick just one of his own examples, before taking office as mayor of Buenos Aires in 2007, he pledged to urbanise all of the city’s villas within a decade, but funds channelled to this end have dwindled under his government. (You could argue that the outgoing government also failed to deliver on promises, but again, we are focusing here on what’s coming.)
In his eight years running the capital, Macri didn’t unleash the Washington Consensus-inspired economic programme some feared, but nor did he tackle the social problem he now pledges to resolve nationwide. Indeed, a recent analysis by social NGO ACIJ revealed how the city government has prioritised spending on advertising and marketing over social housing or public education.
So, where does that leave us? Guessing, for the most part. And hoping. Much will depend on who Macri selects this week to lead the six-minister ‘economic cabinet’ he has promised to form.
Before they were ushered away from the campaign spotlight, several members of Macri’s economic team (some of whom were directly involved in the ’90s neo-liberal experiment) made it known that they aim to implement the full reforms anyway, and as soon as possible. The idea they have is that this ‘shock therapy’ will send a strong signal to investors and that some of the imagined benefits of the new plan, namely an influx of dollars, will have materialised by the mid-term elections in 2017. Doing it sooner also makes it easier to attribute the blame for the inevitable hardship on the outgoing government, and will likely receive the backing of powerful business interests both home and abroad who could even provide quick financing to ease the transition.
The other option is a more gradual approach to change, ironically something akin to that proposed by Scioli towards the end of his campaign. But delaying what they see as “inevitable” will not sit well with Macri’s support base or allies, especially those in the business community that supported his campaign and will be anxious to receive their ‘reward’. The president-elect may have re-branded himself as a “compassionate conservative”, but the old guard of ’90s neo-liberalism hasn’t gone away, and will be looking to make up for lost time.
The path Macri takes will depend on how he views the struggle between the state, businesses, and workers to secure a piece of a shrinking pie. His background is clearly pro-business but it’s worth noting that even more than campaign promises, Macri will be conditioned by a limited mandate – 48.6% voted to stick with Kirchnerism – a minority in Congress, and a high number of FpV provincial governors. And that’s without even mentioning that no elected non-Peronist president has completed a full term since 1928.
One thing is certain, if Macri does decide to break from his new image and resort to a more traditional recipe of devaluation and austerity, he should be prepared to face a backlash. Amid a surge in inflation and interest rates, efforts to restrict wages or implement job cuts – especially in the public sector – would face considerable resistance from unions and social groups that have become highly organised in the last decade. It is unclear how long society’s hunger for change will last once households start to feel the pinch.
Earlier this month, a Cambiemos mayor-elect in Concepción, Tucumán, came under siege in his office after annulling public sector contracts for 400 people. It is a clear warning of the disruption that abrupt austerity measures could bring in a society that voted for change but isn’t about to accept a return to darker times.