Will Mauricio Macri tame the Macroeonomic Circus?

Last year Argentina chose Sergio Massa, third runner-up in the 2015 presidential election, as one of the main delegates to represent her at Davos. International investors’ main concern at the time was about the government’s lack of support – which is understandable given that Macri’s party’s only holds 16% of the seats in the Congreso, won the second-round election by a 1% margin and with 30% voter absenteeism in a country where not voting is a punishable infraction. It looks like that this year Macri has assumed that those fears have been left behind and that the main challenge the country is facing now is about government policy. For last Tuesday attendees at Davos heard from Dujovne, Cabrera, Bullrich and Malcorra – ministers for Finance, Production, Education and Foreign Affairs. Macri seems adamant to convince the world he has got a grip on the macroeconomy – has he been successful? Let’s first have a recap of how Argentina has fared on a few fronts before and after the current government:

Poverty rates: 29% (end of 2015) and 32% now. (1)

Inflation: Risen from 25% to 40%. (2)

Growth: In 2016 the economy shrank by 0.2%. The fifteen-year average had been 2.6%. Current IMF forecasts are pessimistic. (3)

Unemployment: risen from 5.9% to 9.5%. (4)

Fiscal deficit: Fallen by 2.1%.  (5)

Dujovne had a story to tell under his belt: inflation rose largely due to the removal of energy subsidies; so there’s some justification to it. Unemployment… well it slipped off our hands, but that was owing to the fact we have had to focus on bringing that fiscal deficit down. A third of the country remains poor, but that’s the fault of the previous government for keeping the country’s borders shut for 12 years (one wonders how this story is supposed to explain the fact that poverty has risen by 10% with the current administration, but let’s hear the rest). Now that Argentina’s government is on friendlier terms with the international community, globalisation will be the driving force that will lift people out of poverty. While the debate about whether globalisation is good for the poor is still moot in development research, if there’s one thing there is a large consensus about is that a shrinking economy is not good for the poor. How the reduction in poverty will be achieved now that Head of the IMF Christine Lagarde has said there’s little expectation Argentina will recover from the current recession in the near future, remains unexplained.

In essence, Argentina portrays herself as a country that is pursuing long-run growth policies which happen to come with a trade-off in terms of current poverty rates. Will investors be convinced that Macri can afford to keep carrying out these policies with a head-in-the-sand insouciance about what happens to the poor now? We will let the readers decide.

Thursday morning Dujovne met Lagarde after she delivered the bad news, and said he wishes “Argentina develops a mature and cordial relationship” with them. It will take more than cordiality to persuade Bretton Woods. However, we do hope that Argentine will emerge stronger from this not-so-amazing performance at the World Economic Forum. It will hopefully serve as preparation for two other large events Argentina’s next hosting: the WTO conference in 2017, and the G-20 summit in 2018.

Carlos Crítico – Voice of the Left

(1) From Argentina’s Social Debt Observatory, part of Universidad Católica Argentina (UCA).
(2) http://www.bbc.com/mundo/noticias-america-latina-37414102.
(3), (4) & (5)  Figures from Instituto Nacional de Estadística y Censos (INDEC).


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