Argentine President Mauricio Macri accompanied by AMIA's Vice President Ralph Thomas Saieg arrives to attend a ceremony marking the 22nd anniversary of the 1994 attack that left 85 dead at the AMIA Jewish center in Buenos Aires, on July 18, 2016.
Enrique Marcarian—Reuters
By Uki Goni/Buenos Aires
July 19, 2016

After reopening Argentina’s economy to the world after 12 years of protectionist and populist policies, Argentina’s new centre-right president Mauricio Macri is now facing a hard task at home to restore economic equilibrium to this troubled South American nation.

Following his inauguration last December, Macri moved swiftly to settle Argentina’s main outstanding dispute with foreign creditors. He reached a quick agreement to pay $4.6 billion in defaulted debt to a group of U.S. hedge funds, ending a legal dispute that had been been dragging through a New York court for over a decade, hampering the country’s access to foreign credit.

He also removed foreign exchange controls that had been keeping Argentina’s peso currency artificially strong, damaging trade and discouraging foreign investment, while he almost simultaneously reduced agricultural export tariffs that made it difficult for his country’s farmers to compete on the international commodities market.

Those three quick moves on the international economic front during his first months in office brought a sigh of relief from Argentina’s grains exporters who had seen their profits collapse under the protectionist policies of Macri’s predecessor, Cristina Fernández de Kirchner. They also renewed the interest of foreign investors who had been put off by the anti-business climate during Fernández´s administration.

But in recent weeks Macri has had to turn his attention instead to Argentina’s more complicated home front, where much of the president’s energy has been devoted to backing Argentina out of the blind alley in which it found itself at the end of Fernández’s eight years at the helm.

With growth at a standstill, state coffers emptied by Fernández’s profligate populist spending, inflation rising and the courts bursting with revelations of jaw-dropping corruption under the former president, Macri has been left with a heavy inheritance to contend with.

“We can’t change the past, the inheritance exists,” Macri said in a message celebrating the bicentennial anniversary of Argentina’s independence from Spain earlier this month. “But that’s just the starting point, the situation we have to face in the task of building what’s to come.”

With the situation on the international front resolved, Macri is now turning his full attention to trickier problems at home, such as Argentina’s chronic inflation rate. Upon assuming office, Macri’s economic team had predicted they could tame the country’s double-digit inflation before the end of this year.

But that is a pledge they are finding hard to meet, as rising prices continue to eat away at Macri’s inaugural address pledge of “zero poverty” and rapid growth for a stagnant Argentina.

Government figures released last week showed that Argentina will continue suffering the effects of the economic slump it inherited from Fernández until next year at least. The domestic gross product is expected to drop an estimated 1.5% in 2016 before recovering by between three and four points next year. Nationwide inflation, which hit 40% this year, is expected to drop to about a yearly 27% during 2017.

In some areas of the country the figures are even more worrying. In the capital city of Buenos Aires, for instance, prices rose 29% during the first half of 2016, according to official figures, 3.2% during the month of June alone, pushing the city’s inflation rate for the last 12 months to 47.1%.

The picture in Macri’s rear-view mirror, meanwhile, far from receding, seems to be catching up with the president as he enters the second half of his first year in office.

Centre-stage is the ticking time bomb left by Fernández in the shape of the heavily-subsidized home utility rates that helped cement her popularity by keeping gas and power bills artificially low.

Knowing she could not be reelected because of the constitutional two-term limit, Fernández allowed state coffers to be emptied by the giant subsidies she handed out to utility companies in exchange for them keeping rates low, making it inevitable for her successor to apply drastic hikes to balance the national budget.

The dangerous package is proving extremely difficult to unwrap for Macri.

Last week, for the first time during his presidency, Macri had to face thousands of people in Buenos Aires and across Argentina taking to the streets banging pots and pans in protest against the massive tariff hikes of up to 500% that he applied earlier this year to correct the situation.

The protest was called spontaneously on social media after Macri appealed to homeowners to save energy by cutting down on heating. “If you are at home in a T-shirt and barefoot it’s because you’re consuming too much energy,” Macri had said.

The words, coming from the scion of a family of millionaires who was himself photographed with his wife watching a football match on TV only recently, barefoot and wearing football shirts, stoked the fire that resulted in the protest.

“Macri, there’s no heater that can handle the cold in your heart,” read one placard held aloft by a protester under the rain Thursday night. The anger at the massive hikes was vented on social media as well, where consumers uploaded photos of their latest gas bills, which in many cases jumped from a few hundred to thousands of pesos.

Former presidential candidate Sergio Massa, a Peronist break-away who lost to Macri in last year’s elections but who remains a strong contender for the 2018 presidential race, was being interviewed on live television when his wife sent a photo to his smartphone. “It’s the same as what’s happening to thousands of Argentines,” Massa said on camera. “Malena just sent me the gas bill that arrived at home, it’s gone up five times to 8,700 pesos (from about $118 to $590).”

The strong reaction to what for many low-income families are unpayable hikes has called into question the wisdom of the government’s decision to apply shock therapy rather than the kind of gradual adjustments a candidate such as Massa favored.

Massa, who became a Macri ally after being defeated at the polls, broke away from the president on the tariffs issue. “The government went into the operating room with a chainsaw,” Massa said. “They should have raised gas, electricity and water tariffs a little each year, not like this.”

Complicating the scenario, many consumers took to the courts, obtaining judicial orders that blocked the hikes in many districts. The government has backtracked slightly, placing a 400% cap on increases and making it known that services would not be cut off to clients who do not pay on time. The Supreme Court is expected to deliver a ruling in August on whether the hikes are constitutional or not.

Macri’s justice minister, Germán Garavano, said the government would not interfere with court action against the hikes, telling the press he himself has been a victim of the increases. “I paid about one thousand pesos for gas and my bill jumped to over 5,000 (from about 70 to about 335 dollars),” he said.

Apart from trying to balance Argentina’s books, Macri is also having to contend with the ceaseless revelations of mind-boggling corruption under Fernández that are pouring out of the country’s courtrooms. Last Thursday court investigators discovered $4.6 million in cash in the safety deposit box of Fernández’s daughter, 26-year-old Florencia Kirchner, when they raided the bank where she kept the money. (Fernández and her daughter say they are innocent of any wrongdoing and claim they are victims of a “campaign” against them.)

During June, José López, former public works secretary under Fernández, was arrested while he was attempting to hide $9 million in cash at a convent in the suburb of General Rodríguez outside the city of Buenos Aires.

Many other former Fernández officials, including cabinet ministers and even her former vice-president Amado Boudou, are under investigation or in prison facing corruption charges.

President Macri, meanwhile, is hoping that the new business-friendly atmosphere under his government will attract enough new investment to boost production and create new jobs, pointing out the positive response he received during his recent official tour of Europe.

“The world is under siege, in conflict, but it is enthusiastic about Argentina,” Macri said in a speech to the Buenos Aires stock exchange last Thursday. “Right now we’re like pilots flying without instruments, trying to avoid the storms. But we’re on the right track and we have a great future ahead, it’s up to us.”

Opinion polls suggest Macri still enjoys the confidence of Argentines, so long as he can square the economy before their patience runs out. One recent survey placed his approval rating at 54%. “He had a drop of about 10 points during the start of his administration which got worse with the utility hikes and inflation,” pollster Graciela Römer told the daily La Nación. “But we’re observing good short-term expectations based on a reversal of the situation next year.”

Contact us at editors@time.com.

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