There were celebrations in Argentina last weekend following the election of a new president. But for the winner, Alberto Fernández and his running mate Cristina Fernández de Kirchner (a polarizing former president dubbed "CFK" by supporters), the sobering task of repairing a ravaged economy may dull any post-victory glow.
Mauricio Macri was elected in 2015 on a business-friendly platform that included promises to cut inflation and invest in vital infrastructure. But the country’s GDP proceeded to decline by more than 3% during his tenure, accompanied by a surge in inflation, a currency crisis and a $57 billion IMF bailout – the biggest loan in the international organization’s history.
President Macri’s reelection slogan ahead of Sunday’s vote (“Si, se puede” or “Yes, we can”) may have sounded familiar to anyone who followed Barack Obama’s successful 2008 US presidential campaign (and to fans of the Pointer Sisters). But unlike Obama, Macri faced insurmountable odds as he sought a second term. Argentina’s downbeat economic outlook ultimately doomed his prospects.
Just weeks before the election, a group of investors holding the country’s bonds – heavyweight lenders who would very much like to be paid back with interest – came away from a meeting with Fernández associates and IMF officials braced for steep losses. Meanwhile, Macri’s last-minute warnings that his Peronist opponent is a populist whose interventionist policy proposals are exactly what Argentina doesn’t need were unheeded.
Now, Fernández and his high-profile vice president, who faces an added distraction in the form of a trial for alleged corruption, will have to figure out how to get the world’s 24th-biggest economy, as of 2018, back on track. For more context, here’s a set of links to deeper reading (and viewing) courtesy of the World Economic Forum’s Strategic Intelligence platform:
- Fernández was anointed by his running mate and not the other way around, marking the reunification of her leftist Peronism with his moderate faction. While they painted Macri as a neoliberal only interested in pleasing the IMF, in reality, there are no resources left to stimulate growth through government spending in the way promised during their campaign.
- Hard lessons have been learned in recent years: Macri did himself no favours by undermining central bank independence in late 2017 and this, coupled with a severe drought, helped send the peso into a tailspin.
- Hear what a former Argentine presidential candidate and Peronist leader thinks about the current state of play, as Sergio Massa, a 2015 candidate and potentially the next speaker of the Argentine Lower House, analyses the country’s crisis management plans and prospects for structural reform.
- Since 1950, Argentina has spent one out of every three years in recession; just a century ago it was one of the richest countries in the world on a per capita basis. The underlying problem may be a political system that has oscillated between military dictatorship and populism while failing to cement its institutions.
- Last June, Argentines suffered an unprecedented power outage, adding insult to injury for Macri, who had undertaken politically costly reforms to bolster the system, including price hikes. Macri’s successor Fernández has pledged a one-year freeze of electricity and gas prices, which may only hinder the country’s efforts to balance its budget.
- Markets were not thrilled at the prospect of a Fernández victory: his August primary win triggered a free fall in stocks and bonds and a 20% decline in the value of the peso (the currency remained stable after his election was sealed). He will have to tread a more moderate path than his Peronist predecessors, while also avoiding links to the austerity Macri represents in the public imagination.
- Another regret, in hindsight, is Macri’s “gradualismo”. His gradual approach to economic reform and lack of aggressive deficit reduction may have been his undoing, according to some economists. Possibly, as a result, annualized inflation topped 54% last July and analysts expect debt-to-GDP may hit 100% by the end of this year.
- A potential bright spot: as Argentina’s economy has wavered, its economic relationship with China has solidified. By 2017, China was the country’s second-largest import partner and third-largest export partner. This relationship could help Argentina gain access to the valuable scientific and intellectual resources needed for an economic recovery.