On coming to power on December 10, Macri took control of a country that had experienced a decade of unorthodox macroeconomic management. The rule of first Nestor, then Cristina Kirchner, had created a number of distortions in the Argentine economy. This didn’t matter when commodity prices were high but when the price of Argentina’s main exports fell, the economic strain began to tell. But unorthodox policies weren’t the only problem. Investors were also rattled by the anti-business rhetoric of the Kirchner government, its high-profile dispute with international organisations such as the IMF and political manipulation of institutions within the country.
In short, the task facing Macri is a daunting one. In just a few months Macri has managed to tackle several of the most pressing distortions. He has eliminated the tax on beef, wheat and corn exports and reduced the tariff on soy. That was followed by a devaluation of the peso, to put it more inline with market rates, and the lifting of capital controls so that businesses can buy and sell dollars more easily. This has eased pressure on the central bank, which had been using up reserves to keep the peso at an artificial rate.
There are signs of more changes in the pipeline. Macri has promised to work with the IMF and introduce more reliable economic statistics. He has also outlined plans for the central bank to return to inflation targeting – a necessity in a country where annual inflation is running at 30%. Finally, he has signalled a willingness to resolve the ‘hold-out’ dispute, which has limited Argentina’s access to international debt markets.
Yet there is plenty of work left to do. Spring brings negotiations with the trade unions and some sort of compromise is necessary if Argentina is to break out of the wage-price spiral. Meanwhile some necessary moves, such as cutting energy and transport subsidies, can be expected to prove unpopular with much of the electorate. Moreover Macri’s coalition doesn’t command a majority in Congress, meaning that he may not be able to deliver on all of his promises.
But when it comes to attracting international investment, style can be more important than substance and so far Macri’s message seems to be getting through. The reaction of the financial markets has been positive with bullish sentiment already driving up Argentine equities and bonds. While Coca Cola and Renault have shown early faith in the new regime by announcing billion-dollar investment deals. Macri will hope that he can keep the up the momentum.
