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Analysis
Macri must drag Argentina into the future

Macri must drag Argentina into the future

Latin American reformers are watching closely

by David Smith in Buenos Aires

Thu 19 Jan 2017

Sometimes a sacking speaks volumes. The day after Christmas, Argentinian President Mauricio Macri fired Alfonso Prat-Gay, a leading star in the young government. Prat-Gay, the former finance minister, will be remembered as the suave, multilingual economist who returned Argentina to capital markets, bond issues and even the International Monetary Fund during Macri’s first year.

Far from burying the news, Macri’s inner circle revelled in spreading the word, declaring that ‘from this point on, the president will be leading a team on the economy, a united team’. It is no secret in Buenos Aires that Prat-Gay was not the best ‘team player’.

This is a critical time for Macri. The next nine months leading up to October’s congressional elections will decide if he is a one-term president and potential lame duck by 2018, or whether he is the agent of lasting change not just in his own country, but Latin America. The outcome in Argentina will shape the prospects of reformers elsewhere in the region.

‘The reality is that Mauricio has the presidency and the government, but he doesn’t have power because the opposition still controls congress,’ said one of his oldest advisers. ‘He probably can’t win big this year, but he must seek a working majority if he’s to drag Argentina into the future.’

The economy is the key battleground. The contraction that Argentina experienced during Macri’s first year, reaching 1.8%, was expected. So too was the fall of 8% in industrial production, and the rise in unemployment, currently just under 9%. Inflation, ending 2016 at 35%, remains an enduring problem following the lacklustre leadership of former President Cristina Fernández de Kirchner between 2007-15.

But Macri’s achievements should not be undervalued. In 2016 Argentina finally settled the outstanding debts from its 2001 collapse, the government restored honesty to its economic statistics, and the peso was allowed to float freely, and thereby devalued dramatically. A tax amnesty saw Argentines repatriate almost $100bn worth of assets which had been held abroad for decades.

As importantly, Argentina began to look in the mirror and admit a truth long denied by those in power. ‘One in three Argentines lives below the poverty line,’ Macri declaimed in October, releasing the first honest numbers on the issue in decades. ‘It is my responsibility, no one else’s, to confront such poverty.’ Few could recall a president ever taking that lead, especially remembering that his immediate predecessor, Cristina Kirchner, once claimed Germany had more poor people than Argentina.

Macri’s Christmas reshuffle points to a consolidation of power under his leadership. Nicolas Dujovne, chief economist at Banco Galicia for a decade, comes in as minister in charge of economic policy. Luis Caputo, another banking veteran known affectionately by his colleagues as ‘the Pele of numbers’, now heads the finance ministry.

The new team is quietly bullish about prospects for the coming year, predicting growth of more than 3%, inflation under 20%, and curbing the fiscal deficit, currently 4.2% of GDP. ‘You see signs of economic recovery, month by month employment is returning, and real salaries rising,’ said Dujovne on his first day at work this year.

Macri must hope for nothing less than a manifest recovery in 2017. His approval ratings remain sound, and the perpetual revelations of staggering corruption in the last government continue to hamper the opposition as the country prepares to vote in midterm elections.

‘This is the decisive stretch for Argentina,’ said one leading industrialist and long-time supporter of the president. ‘Macri’s challenge is very personal, because he genuinely believes this is the last, best chance to turn the country around – and inspire like minds in Latin America.’

David Smith is Member of the OMFIF Advisory Board and represented the UN Secretary-General in the Americas between 2004-14.

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