Mauricio Macri: A Reformer in the Making

Macri’s willingness to implement necessary economic reforms will allow him to reposition Argentina more competitively in the global economy.

With major countries in Latin America continuing to show signs of both economic and political struggle, Argentina and its leader President Mauricio Macri are beginning to set themselves apart. By quickly instituting what are perceived as ‘radical’ reforms and continually crafting prudent policies, President Macri is rebalancing the Argentinian economy and repositioning the country internationally, effectively saving his country from heading down the perilous path of so many of its neighbors and laying the foundation for sustainable prosperity.

Let’s Change

As the ‘pink tide’ continues to recede in Latin America, few leaders have emerged to such an international welcome quite like Argentina’s Macri has. In a region reeling from economic and political turmoil, his recent election is indicative of a broader wave of political change in the region-away from the left. Meanwhile, his economic policies are demonstrative of the tough and often unpopular steps that Latin American countries need to take in order to return to prosperity on the global stage.

The son of a wealthy Italian businessman, President Macri, who himself spent years in business and as the President of Boca Junior football club, began his political career in the Chamber of Deputies or lower house of Congress in Argentina, running on a center-right campaign platform, eventually rising to become the Mayor of Buenos Aires in 2007. As mayor, his administration was characterized by heavy investment in infrastructure and a stern approach toward labor unions, reducing what he viewed as inefficient government expenditures – a position he has carried forward into his presidency.

After developing regional popularity as mayor, Macri soon emerged as a likely candidate to succeed Cristina Kirchner who was constitutionally unable to run for office in 2015. Following the first-ever presidential run-off in Argentina, Macri  -who represented the Cambiemos (Let’s Change) coalition – narrowly won the nomination by less than 3% of the vote.

Out with the Old

President Macri entered office during a time when Argentina’s and other neighboring countries’ (Venezuela, Brazil, and Bolivia) recent pasts had been characterized by leftward leaning governments. These governments, in turn, leveraged the charismatic personalities or broad appeal of their leaders in order to implement unsustainable populist policies. These policies–implemented on the coattails of the commodity boom–have done little more than set their respective countries on a course for financial disaster, as seen most recently in Venezuela with President Maduro and the increasing level of social unrest there.

In Argentina, Macri is seen as the antithesis of Kirchnerismo, which was the populist left-wing political party and platform of the Kirchners, a pair that consisted of the late Néstor Kirchner, inaugurated in 2003, and his wife Cristina Fernández de Kirchner, his successor who was in office until 2015. Although it is hard to succinctly characterize Kirchnerismo or its cousin Peronism, leaders from both paradigms have denounced several neoliberal ideas. These include privatization, free trade, and more controlled government spending, and instead favor nationalism, protectionism, and abundant government subsidies.

In with the New

By advocating a more free market approach, President Macri has shown political courage by challenging the popular tenets of Kirchnerismo and Peronism, movemements whose candidates have dominated Argentinian politics over the last seventy years. By the end of his first few weeks in office, President Macri had abandoned currency restrictions, encouraged exports by removing capital restrictions and taxes, and began to address utility subsidies.

Macri’s initial efforts were further accompanied by the settlement of the sovereign debt conflict and Argentina’s return to international credit markets in February, marking the resolution of a fifteen-year blemish on the Argentinian economy.
Politically, and maybe most importantly, President Macri has begun diplomatic rapprochement, holding multiple meetings with world leaders who would not have been welcomed in previous administrations. All of these efforts, from the floating of the currency to the opening of international relations, have served to dramatically lower the political risk associated with business and investment in Argentina.

This isn’t to say that all of the policies of the previous administrations should be disregarded. In fact, the previous administrations’ policies helped to lift the country out of the 2001 economic crisis, began the restructuring the country’s sovereign debt, and brought about a certain level of social equality with popular programs such as Universal Child Allowance.

However, Macri’s predecessor’s policies didn’t go far enough; in order to emerge as a stalwart contributor to Latin American prosperity, the president needs to not only preserve social welfare, but he needs to reshape the economy by embracing globalization and capitalize on the benefits of a globally integrated market economy. By improving relations with both its geographic neighbors and the world’s leading economies such as the United States, Argentina can develop into a hotbed of sustainable foreign investment and begin to free itself from the binds of both corporatism and protectionism that previous administrations have placed it in.

Instead of continuing the insular policies and furthering the international ties seen under the previous president, President Macri is enhancing the competitiveness of national industries. As a consequence, he has eased economic controls and, by pursuing improved relations abroad, has ultimately changed the perception which the international community had with respect to doing business with and investing in Argentina.

Patience is a Virtue

As any economist will tell you, successful change of this magnitude takes time. The merits of Macri’s economic reforms will not be visible until the latter half of his first term as president at the earliest. Even if everything goes according to plan, the changes put forth by President Macri’s administration are in stark contrast to the populist efforts of the Kirchner government which came before him and will continue to be met by early opposition as we have seen.

Simply put, economic vindication is only possible through time, and President Macri needs to delicately balance his vision for the future of Argentina’s economy with a concern for his own popular support. Compounding this, an opposition-lead Congress and upcoming mid-term elections do little to add to his margin for error.

Additionally, with a crisis continuing to plague Brazil–Argentina’s largest trading partner–and an overall commodity slow down, market forces are not on Macri’s side either. Suffice it to say the next few months will not be a smooth ride for the newly-elected president.

Keep it Coming

While the efficacy of President Macri’s economic reforms remains to be seen, what is evident is the tremendous decrease in political risk associated with Argentina. The Macri administration has regained the trust of international markets and is continuing to solicit foreign investors. These investors, in turn, could be the key component to revitalizing the Argentinian economy. By having access to a credible source of funds, necessary and significant development projects can be undertaken at much less risk to investors–a huge win for the economy.

Keeping foreign investment interest high is a key to the turnaround story of Argentina. Over the next few months, President Macri and his economic advisors have said they will continue to work at tempering inflationary pressures. These pressures are the result of the adoption of a floating currency rate, which was required to reassure nervous investors.

As President Obama said, Argentina and its President Mauricio Macri are ‘in a hurry.’ Though the American president was emphasizing the rate at which President Macri has put forth credible policy reforms, time remains of the essence. Without a little help, either domestically or from abroad, this power broker could soon run out of time and be relegated to obscurity. For Argentina’s sake, he should be given a chance.

This article was originally published by Global Risk Insights and written by GRI analyst Eric Simmons.