No Shock Therapy: Macri Takes Gradual Approach to Reform

The Argentinian president knows he can’t afford to ruffle too many feathers.

Presidents Mauricio Macri of Argentina and Michel Temer of Brazil deliver a news conference in Brasília, February 7
Presidents Mauricio Macri of Argentina and Michel Temer of Brazil deliver a news conference in Brasília, February 7 (Carolina Antunes)

Argentina’s Mauricio Macri and his coalition have reasserted their position as the party of government following last month’s mid-term elections. The first conservative to win the presidency since democracy was restored in 1983, his supporters won majorities in thirteen out of 23 provinces. They have also taken charge of five of the most populous districts in the capital Buenos Aires.

Yet Macri’s party, Cambiemos (Let’s Change), still doesn’t have a majority in Congress, which helps explain his step-by-step approach to reforming the economy.

No shock therapy

In two years, Macri has liberalized foreign exchange markets, managed a gradual devaluation of the peso, settled with longstanding bondholders, reduced — but not eradicated — subsidies and maintained the popular social programs of his Peronist predecessor, Cristina Fernández de Kirchner.

To help matters, inflation, after an initial sharp increase to 40 percent, has come down to 22 percent.

The government’s deficit is declining and, following a year of contraction, the economy is recovering. 3.5 percent growth is forecast for 2018.

This has allowed Macri to avoid opposition comparisons with Carlos Menem’s neoliberal “shock therapy” in the 1990s, which left 40 percent of Argentinians in poverty.

Instead, it is Kirchner who has faltered with a number of her allies arrested on charges of corruption, by an admittedly politicized judiciary, in the wake of the election.

What’s next

Encouraged by his recent election wins, Macri has promised a “new economic future”. Plans include simplifying the tax code, reforming the labor market and liberalizing the pension system.

There are still plenty of challenges. Wages remain low, unemployment is high and growth is nascent.

Seventy years of Peronism have left the electorate accustomed to popular rhetoric of social justice, economic freedom and political independence. Macri knows that his 2015 victory was as much a vote against Kirchner and high inflation as it was a mandate for liberal reform.

A party united?

His advantage is that the Peronist movement, traditionally united in the face of right-wing division, is falling apart. Kirchner has launched her own party, Citizen’s Unity, which appeals to the urban poor and strongly opposes the government. Some of her former allies are more pragmatic.

Cambiemos remains united for now, but it doesn’t have a long history of cooperation.

Elisa Carrío, the leader of the socially liberal Civic Coalition, wants to keep reform going apace while the governor of Buenos Aires, Maria Eugenia Vidal — the country’s most popular politician — could make her own bid for the presidency in 2019.

Macri’s priority will be providing material improvements for the lower middle class that swung from the Peronists to his side. If he delivers on the promise of growth and lifts these people out of poverty, his party is unlikely to split and Kirchner’s claims of a return to the dark days of Menemism will continue to sound hollow.