Can Mauricio Macri Save Argentina?

After 12 years of rule by the left-leaning Kirchner family (first Nestor and then Cristina), Argentina has elected its first right-of-center president since 2003.  As Mauricio Macri prepares to become Argentina’s next president, he knows that he faces a daunting task in preventing Argentina from falling into a deep economic slump.  With economic growth rates that have been anemic at best over the past two years, this slump has already begun and there are both internal and external factors that are working against the Argentine economy.  Moreover, many segments of Argentine society are opposed to the types of reforms that are needed to ensure longer-term growth in that country and this will make it difficult for the president-elect to make such reforms happen.

Prior to the first round of voting in Argentina’s presidential election last month, the chosen candidate of outgoing President Cristina Fernandez de Kirchner, former Buenos Aires governor Daniel Scioli, was the clear favorite to win this election.  However, his march to the presidency was interrupted by the surprisingly strong performance in the first round of voting by the main center-right candidate, Mauricio Macri, who nearly won as much of the vote as Mr. Scioli and forced a run-off election between the two men last weekend.  In this second round of voting, Mr. Macri defeated Mr. Scioli by the narrow margin of 51.5% to 48.5%, a result that just a few months ago would have surprised many people.  In the end, many centrist voters in Argentina opted for Mr. Macri due to the leftwards shift by the Kirchner government in recent years and by the outgoing president’s abuse of her powers in the latter part of her presidency.

Without question, the most pressing issue facing President-elect Macri is the poor state of the Argentine economy.  Since the beginning of 2014, year-on-year GDP growth rates in Argentina have averaged just 1.0%, making Argentina one of the worst-performing emerging markets during that period.  Internally, Argentina’s economy is struggling to grow as a result of low levels of consumer demand and persistently high inflation rates.  Externally, Argentina’s economy has been battered by low commodity prices that have resulted from the fall in demand in key export markets such as China and Brazil.  Moreover, the constant interference in the Argentine economy by the Kirchner government deterred foreign investors from entering Argentina, preventing the country from diversifying its economy so that it would not remain dependent upon agricultural and natural resource exports.

Businesses and investors have welcomed the election of Mauricio Macri to the presidency and are optimistic that the president-elect will move to enact policies aimed at boosting economic growth in Argentina.  Already, President-elect Macri has called for the controversial head of the country’s central bank, Alejandro Vanoli (a Kirchner loyalist), to resign and he has called for Venezuela to be suspended from Mercosur.  In addition, the president-elect intends to lift currency controls in order to harmonize exchange rates in Argentina, even if this results in a short-term surge in inflation.  Finally, President-elect Macri has vowed to enact policies that will attract more foreign investment to Argentina, as the country is has failed to attract significant foreign investment in recent decades.  While there is little doubt that the near-term outlook for the Argentine economy is poor, the longer-term outlook could brighten if Argentina’s new president enacts policies that allow for the diversification of the country’s economy.