Editorial: Argentina shifts to the left

Four years ago, Argentines elected Mauricio Macri as their president on his promise to fix the country’s troubled economy after 12 years of populist government under Cristina Fernandez de Kirchner and her husband Nestor Kirchner.

Macri — who comes from a wealthy family and was the first centre-right president to lead Argentina since its return to democracy in 1983 —  took office in December 2015.

The Northern Miner spent several weeks in the country after his election, interviewing lawyers, economists, accountants, diplomats, mining executives and government officials, all of whom expressed optimism that Macri could get the country’s finances into shape and attract more foreign investment.

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During his tenure, the pro-business and market friendly politician did away with capital controls and restrictions on imports and access to foreign currency. He also hammered out an agreement with holdout creditors from Argentina’s 2001 default — returning the country to international debt markets.

But in elections on Oct. 27, the Peronists swept back into power under Alberto Fernandez, a law professor, and his vice-presidential running mate, ex-president Cristina Fernandez. (The two are not related.)

Fernandez won the presidency with 48% of the vote to Macri’s 40%.

Macri was unable to convince voters to give him more time to implement structural reforms and create the basis for sustainable economic growth. The country fell into a deep recession last year, and many Argentines feel worse off today than they did in 2015. An estimated one-third of the population lives in poverty, unemployment is in the double digits (10.6% in the second quarter), and inflation rages at roughly 53%. It now takes 59.92 Argentine pesos to buy one U.S. dollar. When Macri took office, one U.S. dollar equalled 9.78 Argentine pesos.

His cuts to subsidies, which raised the cost of transportation and utilities, were unpopular, and along with hyperinflation eroded purchasing power. His decision last year to take a $57-billion bailout from the International Monetary Fund (IMF) to help cover the budget deficit and meet debt payments also proved wildly unpopular. The bank is despised by many Argentines — and is widely blamed for the country’s economic meltdown and $100-billion default in 2001.Fernandez has said he will renegotiate the terms of the IMF’s line of credit, especially the austerity demands that came with it. But whether he will return to the interventionist and protectionist policies and the generous subsidies and welfare spending of Cristina Fernandez’s 2007–2015 government remains to be seen.

The new president served in Cristina Fernandez’s government as chief of staff for a time, but had a falling out with her over tariffs on agricultural goods and left his position in 2008. Before that, he was chief of staff under her late husband and former president, Nestor Kirchner, who ruled from 2003 until 2007.

Fernandez has yet to unveil a detailed economic plan, and will have to manoeuvre between various factions of the coalition that put him in power. While he is viewed by many as more pragmatic and moderate on economic issues than Cristina Fernandez, she will have influence in the administration, and he will be under pressure to show he is firmly in charge.

Stratfor, a geopolitical intelligence group in Texas, said in a note that Fernandez “plans to work with local and foreign companies to place a six-month freeze on the prices of food and other products,” and has “pledged to boost domestic consumption by raising salaries in the private and public sectors above the inflation levels, which is likely to push inflation up.”

A day after the election results, Argentina’s central bank imposed capital controls to protect the country’s reserves, restricting the amount of foreign currency Argentines could buy to US$200 a month — down from US$10,000.

Capital controls will make it more difficult for multinationals to repatriate revenue.

“Fernandez’s acid test will be how he manages to promote investment into Argentina while at the same time managing the weak economic situation,” Ignacio Celorrio, a lawyer and partner at the Buenos Aires-based law firm, tells The Northern Miner.

Despite the uncertainty, Fernandez apparently has signalled his support for Argentina’s extractive sector.

“He will be a strong political supporter of mining — he has already said that a few times,” Celorrio says. “He also has said that he plans to promote investment and development in the oil and gas sector — so there is a trend that he will try to attract investment in Argentina’s natural resources in general as a source of exports and foreign exchange.”

Fingers crossed.