Image: European Pressphoto Agency
Mauricio Macri was inaugurated as the newly-elected president of Argentina in December of 2015. After a contentious presidential election, Macri benefitted from high popularity rates and support from different political parties during the first semester of 2016. However, the honeymoon phase is over and the second semester of 2016 has been less eventful for the Macri administration.
Up next, we provide an overview of what 2016 has been for the Macri presidency in terms of domestic politics, international politics, economics, and finance.
Domestic Politics
Approval Rating
Upon election, President Macri promised to jumpstart the economy and to tame inflation by the second half of 2016. Since then, inflation is still at alarmingly high rates and the economy remains stagnant. President Macri’s approval ratings have fallen from 60 percent in December 2015 to around 50 percent. In fear of another profound crisis, the Argentine electorate voted for the first center-of-right government since the country’s return to democracy. However, Macri’s promises are now taking a toll on his popularity.
Minority in Congress
Despite the odds of having a minority in both the lower and upper houses of Congress, President Macri’s government was able to disrupt the absolutist legislative power that Kirchneristas had managed to secure during the past decade of power. During the first semester of 2016, Macri’s center-right party found common ground with dissident Peronists and successfully managed to pass vital legislation, such as the authorization to pay off foreign debt and the approval of two nominated Supreme Court justices. However, Macri has only managed to pass 38 percent of the laws presented in the Congress. The outlook for next year is not promising: the legislative opposition is unifying against his administration and President Macri recently labeled a prominent dissident Peronist, Sergio Massa, as an “impostor” for supporting a fiscally expensive income tax reform proposal.
International Politics
Macri has put Argentina back on the international stage. Twelve years of Kirchnerismo alienated the country from international organizations, trade, and high-level exchanges with governments outside of Latin America. Since his campaign, Macri has advocated for a more pragmatic foreign policy approach, which has characterized his first year in office.
Reconnection with Global Affairs
Image: World Economic Forum
Macri attended the World Economic Forum in Davos at the beginning of 2016, where he met with entrepreneurs and world leaders to discuss economic liberalization and prospects for foreign investment. In March, President Obama made an official state visit to Buenos Aires, after a U.S. president had not been to Argentina in more than a decade. During his visit, Obama praised Macri’s reforms and his willingness to reconnect Argentina with the global scenario. Also, the PRO government’s Ministry of Foreign Affairs, Susana Malcorra, served as UN Chief of Staff under Ban Ki-moon and, in an impressive feat, she was presented as one of ten candidates for secretary general of the UN in May.
Regional Affairs
Although Macri has had a successful rapprochement with the international community, he has faced strong challenges in Latin America and the Caribbean regional stage. From the first days of his presidency, Macri actively denounced the Maduro administration of imprisoning political enemies without substantiated legal justification. He expressed his support for the Venezuelan opposition, and even hosted its leader Henrique Capriles in Buenos Aires.
Furthermore, remaining pink tide governments in the region have denounced the Macri administration of interfering with Venezuela’s domestic affairs and the political prosecution of former president Cristina Fernández de Kirchner. Although these claims were unsubstantiated, the likes of Rafael Correa and Evo Morales stand firmly against Macri’s attempts to act as a regional leader.
The Organization of American States
During the early weeks of his administration, Macri made a public call for the application of the OAS Charter in Venezuela, which would lead to the country’s expulsion from the multilateral body. Secretary General Almagro initially backed this claim. However, he and Macri have fallen out of favor after speculation that Argentina stalled conversations on Venezuela’s crisis in an attempt to get Minister Malcorra elected as UN Secretary General. The relationship between the President and Almagro was complicated even further when the OAS director brought light to the imprisonment of militant indigenous leader Milagro Sala. This case has trumped Macri’s efforts to lead the regional case against human rights violations in Venezuela.
Economics and Finance
Argentina has long suffered from fiscal irregularities and debt defaults, making financial reform a key priority of the Macri administration. In the months leading up to the election, Macri’s economic team gave limited comments on which reforms they would implement. The electorate feared that Macri’s right-of-center platform would bring about financial chaos reminiscent of Menem in the late 1990s. Now in power, President Macri and Finance Minister Alfonso Prat-Gay have set an agenda of tightening reforms with short term shocks but potential long-term growth.
Capital Markets
Significant strides have been made thus far in regaining access to traditional international capital markets. In April, Argentina issued $16.5 billion in government bonds, making it the largest emerging market debt deal on record. Macri was able to end the ongoing struggle between his country and hedge fund managers - most notably Paul Singer - who sued the government after the biggest sovereign debt default in history back in 2001. As a result, investor confidence has strengthened during Macri’s first year.
Fiscal Transparency
In an attempt to tackle issues with fiscal transparency and undeclared cash assets throughout the country, the Macri administration launched a fiscal sincerement program, known as “Blanqueo de capital”. Under this program, undeclared cash belonging to Argentine citizens was collected with no penalty at a lower fixed tax rate of 5 percent. This brought around $22 billion American Dollars in total.
Subsidies
In 2014, the government spent 3 percent of the country’s GDP on subsidies for gas and electricity, pushing the deficit to 5.4 percent of GDP last year. Although these subsidies benefited Argentine everyday consumers, they stifled growth in the energy sector, due to a lack in cash for investment. The Macri administration set forth a fourfold increase in the price of gas and a sixfold increase in the price of electricity.
Economic Growth and Slashed Inflation
President Macri vowed to slash inflation and to reignite the Argentine economy during his presidential campaign and during the first semester of his presidency. After a year in office, inflation is still soaring at an annual rate of 40 percent and the economy shrunk 2.3 percent in 2016, with no net growth in the fourth quarter of the year.
Exchange Rate and Currency Controls
Following the presidential election, Macri’s administration swiftly lifted currency controls and let the Argentine peso float on the foreign exchange market, ending years of currency controls. After a year in office, the peso is at an all-time low, valued at roughly 16 pesos per U.S. dollar. In addition to liberalizing the currency regime, Macri also scrapped most export duties on agricultural products and minerals, making Argentine agricultural and mineral exports more competitive in international markets. The combination of a weaker currency and diminished export duties creates favorable market conditions for Argentine exporters. In 2016, the Argentine agricultural sector produced 20 percent more grains than the previous year and the economic benefits are spilling over into other sectors of the economy, such as the manufacturing and automotive industries.
Unemployment, Real Wage, and Poverty
Unemployment in the formal sector of the Argentine economy remains high, at 8.5 percent, and there has been no significant job creation in the private sector. Conservative estimates report real wages to have dropped by 5 percent, which is primarily attributed to a 500 percent hike on gas and electricity bills, and increases in transportation fares. After a year of promising to “fight” impoverishment, poverty has actually increased from 29 to 32 percent.
Moving Forward
Macri has successfully managed to survive his first year of presidency without significant turmoil, but the outlook for 2017 is uncertain as social and political opponents are prepared to hold the President accountable to unmet promises and a deepening recession. If Macri’s first year of tightening reforms fail to deliver the expected benefits, his administration will be met with an uphill battle against the Peronist grassroots and their majority in Congress. 2017 will be a year of judgement where economic performance will serve as an indicator for Macri’s credibility.
Macri is also to consolidate regional leadership by appealing to his affinity with Brazil’s Michel Temer and Perú’s Pedro Pablo Kuczynski in order to salvage Mercosur. If Macri’s efforts for liberalization exert positive changes on this outdated regional integration mechanism, he will open opportunities to work jointly with new regional bodies like the Pacific Alliance. In doing so, his administration would foster the long sought-after economic integration of Latin America.
Special thanks to the contribution of Santiago Bestilleiro, B.A. of History from Torcuato di Tella University, Buenos Aires, Argentina.