August 15, 2019 12:57PM

Macri Is the Only One Responsible for His Downfall

The Wall Street Journal described it as a “setback,” but the appropriate term is a “shellacking.” Mauricio Macri’s chances of being reelected in Argentina are pretty much over after he finished 12 points behind the Peronist ticket of Alberto Fernández and former president Cristina Fernández de Kirchner in Sunday’s mandatory presidential primaries. Even though Macri might still think he can make a miraculous comeback, the markets are already writing him off for the election in October. Thus, it’s not too soon to write his presidential obituary.

The case against Macri is straightforward. Nearly four years after coming to power, the economy is contracting, inflation is among the highest in the world, poverty is rising, and the country has once again been bailed out by the IMF. Even Macri’s sympathizers struggle to find positive data to support his case for reelection.

Granted, Macri inherited an economic mess after 12 years of populist rule by Fernández de Kirchner and her late husband Nestor. He won the election in 2015 by a slim margin. He didn’t have a majority in Congress. He had to face powerful unions. Furthermore, in the past one hundred years there has not been a single non-Peronist president that has successfully completed a presidential term.

Dismantling currency and price controls, cutting back subsidies, reducing overall spending, bringing the deficit under control, and taming inflation was not going to be easy. The question from the beginning was, what kind of approach would Macri adopt to reforms? He opted for gradualism. Macri was quick to lift currency controls and return Argentina to international bond markets, but he failed in cutting spending. Thus, the fiscal deficit remained high, taxes continued to be punitive, and high inflation endured.

In December 2016, one year after he came to power, the joke making the rounds was that Macri was a Harry Potter-style president: he could only survive while the magic lasted. Unfortunately, his ultimate act of magic was not pursuing structural reforms but indebting the country: public debt—both foreign and domestic—skyrocketed. Back then I warned in my weekly column in Costa Rica’s La Nación that sooner or later the magic will end.

The magic dust evaporated in May 2018 when the peso lost 20% of its value in a week. This was caused by a couple of unforced errors: the readjustment of inflation targets and the introduction of a new capital gains tax. Facing meltdown, Macri was forced to negotiate a bailout with the dreaded IMF—at $57 billion, the highest ever. Inflation soared due to the devaluation of the peso, and the economy went into recession. Even though Macri accelerated some spending cuts after the agreement with the IMF, he increased taxes and even reinstated price controls.

By the time he launched his campaign for reelection, it was difficult to call Macri a “reformist.” His main goal during his years in power has been to fight for his reelection. In the end, as Sunday’s result attests, it looks like he will not even achieve that.