The election of Mauricio Macri as the new president of Argentina brings to a close 12 years of populist, interventionist and increasingly authoritarian Peronist rule by Cristina Fernández and her late husband Néstor Kirchner. Here are some observations of what’s ahead for Macri’s Argentina:
The meaning of “change”: Argentines were adamant ahead of the election that they wanted change. However, polls reflected that voters were tired of the confrontational governing style of President Fernández de Kirchner and her cadre, but not necessarily of her economic policies. The government successfully sold its so-called “narrative” regarding the wisdom of many of its interventionist policies, such as the nationalization of industries, the implementation of subsidies, prices freezes on public services, etc. This forced Mauricio Macri to either downplay the need for reforms in some areas or to outright discard them (such as reversing nationalizations). The new president will have to implement some painful measures (like scaling back subsidies that amount to 6% of GDP) that he didn’t explicitly explain to voters during the campaign.
The one area of economic policy that Argentines most rejected was the high inflation rate (around 26% now but it reached nearly 40% a year ago) and the related exchange controls. This is where Macri’s proposals were bolder: he promised to stop the doctoring of the inflation statistics and to lift exchange controls on his first day in office. He also said that the official exchange rate will reflect the reality of the market, although he didn’t specify how long it will take for the official rate and the black market rate to converge.
Macri’s mandate: Argentina’s new president will come to office with a relatively weak mandate. His margin of victory was smaller than predicted by most polls (51.4% versus 48.6% for Daniel Scioli, the ruling party’s candidate). He won’t have a majority in Congress and most of the provinces’ governors belong to other parties. Moreover, as I wrote over a month ago, the Kirchner administration has been busy approving legislation limiting the powers of the incoming president.
In Macri’s favor is the fact that his party PRO will control the presidency, the governorship of the province of Buenos Aires (where 37% of Argentines live) and the mayorship of the capital Buenos Aires. This should give him some breathing room for governing.
Confidence shock: Macri’s room for maneuver passing legislation will thus be quite limited, but he can still inject a much-needed confidence shock in the economy and the country’s institutions. Macri already signaled that he would give more independence to the Central Bank and INDEC, the statistics office. If he fulfills his promise to lift exchange controls on his first day in office, it would certainly send a strong message about his commitment to reform. All eyes will also be on how and when he approaches the holdout creditors for negotiations –a necessary step to restore Argentina’s international credibility. He is also likely to build a more constructive relationship with the media. Finally, Macri can end years of increasing protectionism by lifting the many trade barriers that have been created in the last 12 years and indicating that Argentina will play a new role within Mercosur aimed at embracing freer trade.
Tellingly, Argentina's country risk rating –according to JP Morgan– fell 16 basis points upon the news of Macri's election, to the level it had in early 2011, the year Cristina Fernández was reelected. This shows how much room for improvement there is if Macri kick-starts his government with decisive announcements.
Rebuilding republican institutions: The last days of the campaign showed promising signs for Argentina’s future as a republic. One week ago the two contenders for the presidency debated for the first time in Argentina’s democratic history. By the end of that debate, both Macri and Scioli embraced each other despite the sharp attacks they exchanged. Last night, even though Macri’s advantage in the tally was narrowing, Scioli conceded defeat and called him to congratulate him. Even President Fernandez de Kirchner called Macri and offered to meet him to work on the transition. This would sound normal to many Western observers, but Argentina isn’t a normal democracy.
Argentina sorely needs to rebuild its republican institutions. Perhaps this is where President Macri can leave his greatest mark.
A positive influence in Latin America: It’s not the first time that a right-of-center candidate is elected in the region in the last decade. However, unlike other conservative presidents that cowardly remained silent regarding the erosion of democracy in Venezuela (such as Sebastián Piñera in Chile or Felipe Calderón in Mexico), Macri has stated that he would call on Mercosur to suspend Venezuela’s membership for violating the bloc’s democratic charter. This will certainly be a major shift in the political dynamics of Latin America.
The challenges are certainly formidable for Mauricio Macri. Fortunately, there are reasons to be hopeful about what his election means for Argentina and the region.