Argentina Elects Pro-Business President; Big Change Expected

Argentina Chooses Economic Change in Macri Victory
  • Mauricio Macri, mayor of Buenos Aires, promises rapid shifts
  • Plans to lift currency controls, cut taxes, deal with debtors

Argentina voted for deep change on Sunday, electing the center-right opposition leader Mauricio Macri to be president in an end to 12 years of leftist populism, setting the stage for economic liberalization, a warming of relations with the U.S. and political reverberations across Latin America.

QuickTake Argentina

Macri won 51.4 percent of the vote against 48.6 percent for the ruling party’s Daniel Scioli, the National Electoral Council said, with more than 99 percent of ballots counted. At Macri’s headquarters late Sunday, his supporters danced and cheered for "Macri Presidente,” as he told them “a wonderful new stage begins for Argentina.”

The next morning, Macri reiterated that he would eliminate exchange controls, called on the central bank to aid the transition and said he would name his cabinet as soon as possible. The slump in international reserves represented a problem for Argentina and the new government would have to investigate exactly how bad the situation was, he told a press conference.

“We’re going to see what the real state is of the public accounts, what the real situation is of the central bank,” Macri said. “Currency controls are a mistake, not providing information, not having access to statistics, not having an independent central bank - these are things we are going to correct.”

The 56-year-old mayor of Buenos Aires is a wealthy businessman and former head of one of the country’s most popular soccer teams. He has promised to negotiate with hedge fund creditors to boost investor confidence amid the lowest reserves in nine years. He will also focus on cutting inflation, fixing the largest fiscal deficit in 30 years and luring back international investment dollars.

In anticipation of a Macri victory, bond yields fell to an eight-year low and the local stock market has rallied to a record high. The benchmark securities due in 2033 gained to a price -- which includes interest owed since last year’s default -- of 115.6 cents on the dollar, an eight-year high. Argentina warrants linked to gross domestic product surged 6.8 percent to 10.7 cents on the dollar, the highest since 2012.

‘Savage Capitalism’

“This is a sea change not only for Argentina, but possibly for the region more broadly,” Alejo Czerwonko, a strategist at UBS Wealth Management, said in an e-mailed response to questions. “Macri’s victory could foreshadow a shift in favor of market-friendly and reform-oriented politicians in the region.”

Scioli and his supporters have warned that Macri’s policies, which they dismiss as "savage capitalism," will erode vital social welfare programs on which the poor depend and create an economy that caters to the rich. Macri will govern with a minority in both houses of Congress, although he is bolstered by the surprise capture of Buenos Aires province in last month’s election.

Many people voted for change after more than a decade of rule by President Cristina Fernandez de Kirchner and her late husband. Scioli had stressed the achievements of Fernandez’s government, citing unemployment below 6 percent and low debt levels. Macri said poverty levels were rising again and that the government was doctoring the figures.

"The government is constantly saying we live in paradise," said Santiago Canedo, 28, a law student who voted for Macri. "They say one thing and then do the next. I’m optimistic that things will change."

Under Fernandez and her deceased husband Nestor Kirchner, Argentina has stood shoulder-to-shoulder with other leftists in the region, including the Castro brothers in Cuba, Nicolas Maduro in Venezuela and Rafael Correa in Ecuador. Macri calls his approach the opposite of Venezuela’s "21st century socialism": "21st century development." He reiterated Monday that he wants Venezuela ousted from the Mercosur trade bloc over its anti-democratic policies and human rights abuses.

Regional Swing?

Those countries, as well as Brazil, rode a wave of commodity price highs -- in oil, corn, soybeans -- leading to a string of leftist victories. They are now suffering from the collapse of those prices and Macri’s victory in South America’s second largest economy could augur a rightward regional swing. Macri said Monday that he hoped to travel to Brazil, where President Dilma Rousseff in threatened with impeachment. Legislative elections are due in Venezuela on Dec. 6 and the opposition is leading in all polls.

Fernandez, who will hand over power to Macri on Dec. 10, has used a number of levers to promote her policies, including seizing pension fund assets and the nation’s largest energy company while increasing welfare programs and battling U.S. hedge funds over defaulted debt.

There is skepticism in some quarters about Macri’s ability to govern. This is because he will not have a congressional majority and because he is not from the Peronist movement which has, in effect, ruled Argentina for most of the past seven decades using populist tactics of both right and left. One result of this election will be a crisis within Peronism as the movement charts its next moves.

Painful Changes

"The first months, as a way of showing what’s to come, are going to be very important to assuage some sectors that have doubts over Macri’s capacity to govern," observed Lorena Moscovich, a political scientist at the University of San Andres in Buenos Aires. She said he needed to move quickly during his honeymoon period to push through the most painful changes. No non-Peronist has finished his term in office since the movement was founded in the 1940s by Juan Peron.

Scioli, who during his campaign pledged to maintain several of Kirchner’s policies, won the first round on Oct. 25 with 37 percent to Macri’s 34 percent. But he had been expected to do far better, with many forecasting he would take the presidency with the 10-percent spread required by law to avoid a runoff. Instead, Macri nipped at Scioli’s heels and then stole the momentum that sent him to the presidential palace known as the Casa Rosada, or pink house.

Investors continued to express enthusiasm about Argentina’s economic future.

"It’s probably the most obvious country in the world to make the transformation from where it is to where it could be to reach its potential with the least amount of struggle," remarked Tim Love, investment director of GAM, an asset management firm. "You’ve got it all and you’ve got a working democracy. This is a lay-up compared to the other frontier markets I deal with in the world."

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