President Mauricio Macri has made the same sales pitch to bankers, tech titans and world leaders: Argentina’s moved past the populist trap that doomed it for decades. Foreign investors say they like what they’ve seen and heard since Macri took office more than a year ago. But investment is still scarce and the economic reforms meant to heal the economy have driven up the unemployment and inflation rates. How long will Argentines swallow Macri’s medicine?
Macri has run through much of his fiscal to-do list. Argentina emerged from recession in the third quarter of 2016. S&P Global Ratings raised its credit rating by a notch in April. Macri has lifted currency controls that had shaken faith in the peso. He’s corrected years of government data on things like inflation and gross domestic product that had been made up or polished. He’s phasing out energy and public transportation subsidies. By the first quarter of 2017, his tax amnesty plan had convinced Argentinians to declare $116.8 billion in assets that had been hidden under mattresses or overseas. And he settled a 15-year dispute with creditors. This paved the way for Argentina to sell debt abroad again in April 2016 — $16.5 billion in bonds that at the time set a single-day sales record for a developing country. But the economic recovery Macri’s promised has failed to materialize for many people and one third of the population lives below the poverty level. After 2016 economic data was published showing a hobbled economy, his approval rating fell below 50 percent for the first time. Macri, needing a scapegoat, as one former securities regulator put it, fired his finance minister in December.
In the hundred years after independence in 1816, Argentina went from an impoverished backwater of the Spanish empire to one of the wealthiest nations on earth, as its vast plains supplied the world with beef and grains. Exports and investment collapsed after the great depression of 1929 and a series of military coups began. Juan Peron, first elected president in 1946, allied with workers by awarding higher wages, raising import tariffs and nationalizing businesses. Eva, his wife, expanded payments to the poor, calling them “social rights.” The country spiraled into hyperinflation during his third term in the early 1970s. A military dictatorship then borrowed heavily to finance infrastructure and state industries. In the seven years after the 1976 coup, foreign debt ballooned to $46 billion from $8 billion. (Argentina has argued it shouldn’t have to pay this “odious debt,” since it was incurred by unelected governments.) Military rule crumbled after the disappearance of as many as 30,000 people considered dissidents and a stinging defeat by the British in the Falkland Islands War. Carlos Menem, president from 1989 to 1999, privatized state companies and didn’t rein in spending, so borrowing soared again. When a recession hit in 2001, Argentina declared the largest debt default in history. Nestor Kirchner, elected president in 2003, dug the nation out by riding a commodity boom and restructuring most of the debt. He was succeeded by his wife, Cristina Fernandez de Kirchner, in 2007. She continued generous public spending and was re-elected in a landslide, after which the boom began to peter out. In 2012, she stunned foreign investors by seizing Argentina’s main energy company, YPF. Argentina’s 2014 debt default — its eighth — came after the country refused to comply with a U.S. court order to pay the full value of bonds bought by U.S. hedge funds, dubbed vulture investors. Macri, a two-time mayor of Buenos Aires, won the presidency in November 2015 on a pledge to end a dozen years of protectionist policies and uncontrolled spending.
While Macri has lined up more than $30 billion of investment plans for the next few years, a third of this is from Argentine companies. In January, Argentina lifted the last major currency regulations that made it hard for foreign investors to freely trade stocks and bonds. The nation offers tempting opportunities. It has the world’s second-largest shale gas reserves and the fourth-largest deposits of shale oil. The economy is exhibiting signs of life in construction and grain exports, but the clock is ticking on Macri’s reforms. He needs to show that jobs are being created and the economy is rebounding before midterm elections in 2017.
The Reference Shelf
- Bloomberg Businessweek article: “Argentina President Macri Throws Open the Books.”
- In an interview in September 2016 with Bloomberg TV, Macri said that his goal is a “one-digit” inflation rate in two years.
- The Organization for Economic Cooperation and Development’s economic outlook for Argentina.
- The Bloomberg QuickTake on Vulture Investing.
Daniel Cancel contributed to the original version of this article.
First published Oct. 16, 2015
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