Publish in Perspectives - Wednesday, November 1, 2017
Argentine President Mauricio Macri at an event in Buenos Aires, flanked by Buenos Aires Governor María Eugenia Vidal and hydraulic worker. (Photo: Casa Rosada)
President Macri’s victory provides sufficient stability for foreign direct investors.
BY WALTER T. MOLANO
The midterm elections delivered a resounding victory to President Mauricio Macri, and his Cambiemos coalition. He swept the four largest cities in the country, Buenos Aires, Cordoba, Santa Fe and Mendoza. His candidate, Esteban Bullrich, even beat former President Cristina Kirchner de Fernandez by four points in the senate race for the Province of Buenos Aires. Under Argentine electoral rules, the winner gets two seats, while the runner up gets one. This meant that Mrs. Kirchner de Fernandez will move on to the senate, where she will enjoy some judicial immunity. However, the message that was delivered by the congress a few days after the elections meant that she was not beyond the long arm of the law. This occurred when the Lower House voted in favor of stripping Congressman Julio De Vido of his legal immunity. De Vido was accused of a long list of corruption and abuse charges during his tenure as Kirchner’s Planning Minister. The next day, as the police were showing up at his home, he turned himself in; thus putting another Kirchner ally behind bars.
President Macri’s candidates won the gubernatorial race in 13 of the country’s 23 provinces. Even the charismatic Peronist candidate, Juan Manuel Urtubey, lost his governorship in the Province of Salta. Urtubey was one of the leading Peronist contenders for the next presidential election, but now he may slip into oblivion. The midterm elections left the Peronist Party in tatters, with some Argentine commentators saying that it was time to rethink the party. The ideals and imagery of Juan Peron are outdated, and it is time for it to modernize. There is a great deal of anger within the party at Cristina Kirchner, and her polarizing tactics. The most vivid example was the case of Santiago Maldonado, a hippy activist who disappeared during a violent protest in the Province of Chubut. Maldonado had joined a group of Mapuche Indians who were protesting against the seizure of their indigenous burial grounds. Molotov cocktails were thrown, and the police gave pursuit. Maldonado was never seen again. Cristina Kirchner de Fernandez used the incident to incite her followers, saying that it confirmed that the Macri Administration was an incarnation of the military dictatorship, where young protestors were “disappeared” and the government maintained cozy relationships with large corporations. Yet, the move backfired. Many Argentines resented her use of the painful memories of the dictatorship to further her political ambitions. To make matters even worse, four days before the elections, the police found Maldonado’s body only 300 meters from where he was last seen. His brother identified him from his tattoos, and no signs of aggression were found on his body. All signs pointed to the probability that he had drowned while crossing the icy Chubut River, as he fled from the police. This helps explain how Fernandez de Kirchner’s movement lost in traditional Peronist bastions—such as the Province of Buenos Aires. Despite dealing with a poverty rate of 33 percent and inflation rate in the mid-20s, Argentines were no longer interested in going back to the populism and rampant corruption of the previous administration.
The electoral victory is not only a strong mandate for change, it suggests that Macri will be around for another 6 years. This is a sufficiently long period of stability for foreign direct investors to take a new look at Argentina. Macri does not have an outright majority in the senate or the lower house, but he now controls the biggest minority. This should give him the votes needed to press ahead with his legislative agenda. Top on the list will be fiscal reform, followed by the implementation of the fiscal responsibility law. These reforms are urgent. Argentina needs to plug its 4.5 percent of GDP fiscal deficit. Although the government was able to raise utility rates, they are still very low. As a result, subsidies are costing the government almost 2 percent of GDP. Likewise, the massive issuance of debt has now raised financing costs to 2 percent of GDP. Next up will be labor reform. Although Argentina will not embark on an as extensive program as the recent Brazilian labor reform, the new measures will help liberalize the work regime. The Federal and provincial governments have been able to deal with the fiscal and current imbalances by issuing debt in the international and domestic markets. But, this has created some problems. The government has become too dependent on international investors to meet its obligations, and they are a fickle crowd. The high level of liquidity could evaporate if external conditions change. Likewise, the massive issuance in the domestic markets has crowded out the private sector, and this could affect the level of economic activity. Nevertheless, implementing the reforms will help alleviate the problem. Fortunately, the electorate gave the government the green light to move ahead.
Walter Molano is head of research at BCP Securities and the author of In the Land of Silver: 200 Years of Argentine Political-Economic Development.