Argentina’s Macri Faces Tough Economic Reforms

With 98% of the vote counted, opposition candidate Mauricio Macri is poised to become Argentina's next President. In a runoff vote following the general election on October 25th where neither party secured a majority, Marci’s Conservative Party beat out Daniel Scioli, Argentine President Cristina Fernandez de Kirchner's hand-picked Peronist successor in an election that marks the end of a political dynasty. Macri will become only the third non-Peronist leader since the end of military rule in 1983.

Macri focused his election campaign on the people’s sense of frustration over the country’s lackluster growth, high inflation and widespread corruption and his challenge will be to change the scenario on Argentina’s economy, a campaign promise that made him popular on Wall Street but drew severe criticism from his opponents.

With 98% of the vote counted, opposition candidate Mauricio Macri is poised to become Argentina's next President.

3 Percent Margin

With a margin of victory of less than 3 percentage points, Macri will have to move quickly to show hints of an economic recovery by the end of 2016, before the mid-term congressional election scheduled to be held the following year.

The election of Macri, a center-right candidate who was served two terms as mayor of Buenos Aires, could signal a conservative shift for Argentina. In his victory speech Sunday night, he promised he'd work to eliminate poverty in Argentina and change the way business is done.

"I also want to say to our Latin American brothers and our brothers around the world that we want to have good relationships with all countries," he said. "We want to work with everyone. We know that the Argentine people have much to bring to the world, and we hope to find an agenda of cooperation."

There are a number of economic challenges facing the 56-year old newly elected President. Argentina’s economic growth has been slow, propelled by untenable spending. Inflation hovers above 20 percent and despite capital controls that have been put into place foreign reserves remain at nine-year lows. In addition, the country is also stuck in a heavy debt default that is preventing access to global credit markets.

"We cannot solve all the problems that this government is leaving behind on the first day," Macri told his constituents ahead of the run-off vote on Sunday. Macri, has promised to undo a web of currency controls and trade restrictions that have discouraged investors from putting money into the country and have stymied any significant economic growth. Some moves have to be put in place as quickly as possible and Macri has to deliver them without hurting the poorer segments of the populace.

Lifting capital controls that have limited access to dollars and fusing a multi-tiered exchange rate may lead to a sharp devaluation which, while needed to restore trade competitiveness, will affect consumer prices, so small moves are preferred over more aggressive ones and lifting currency curbs will have to be staggered.

Policy Changes

Policy changes such as eliminating heavy taxes on grains exports and revamping economic data considered to have been prejudiced by Fernandez's government could be put into place swiftly and will highlight his intent to bring change. In his efforts to please both the poorer Argentines who had happily lived off the generous welfare programs provided by the government until now as well as the pro-business segments who have been frustrated by state restrains on the economy, Macri will have to weigh his moves carefully in his efforts to get the economy moving at a rapid pace.

As the next president, he will be expected to scale back energy and transport subsidies in his first year in order to narrow a widening fiscal deficit. Economists estimate that about 20 percent of government spending goes towards these subsidies, but weaning Argentines off cheap power and transport may prove unpopular.

Opponents are also concerned that Macri's pro-market policies could put the interests of big business ahead of workers, bring down salaries and destroy pensions emphasizing the conflict between them and Macri over the next four years.

Macri will be a minority in Congress. He will have to move quickly while treading carefully with some elements of his reform program so as not to attract the opposition’s ire. Many challenges stand in his way.

Cina Coren
Cina Coren is a former Wall Street broker and financial advisor. She holds a Master's degree in Communications and spent many years writing for international news outlets and journalistic publications. Today, Cina spends most of her time writing internet articles and blogs, and reading various newspapers to stay on top of the news.