Argentina’s brief window for reforms opens up

“I am surprised you are not watching your phones,” teased Alfonso Prat-Gay. It was the morning of June 24 2016, and Argentina’s finance minister was warming up his crowd: a group of New York-based investors who, potentially, might sink billions into his country. It was also the day after the UK had voted to leave the EU.

Global markets had gone haywire. Traders and investors everywhere were on alert. Many had cancelled meetings. Yet at the Park Avenue mansion, the conference room was packed to overflowing — a sign of the excitement that the “New Argentina” can generate abroad. Even Larry Fink, chief executive of BlackRock, the world’s largest asset manager, was there.

“Whether it is Brexit . . . or the political realities of the US . . . these are expressions of popular anger. Conventional wisdom has often been wrong in interpreting this anger,” Fink told the rapt audience at the Americas Society/Council of the Americas. “[But] I do think there are some countries seeking to arrest that anger and build a better future . . . President Macri has shown what he can do. Hopefully, Europe will look to Argentina.”

Mauricio Macri has enjoyed similar accolades — at least abroad — as his government has begun to reverse Argentina out of the cul-de-sac into which his predecessors, Cristina Fernández de Kirchner and her deceased husband Néstor Kirchner, drove the country during 12 years of populist rule. Macri’s first task — apparently undramatic but in fact revolutionary — is to make Argentina a normal country again.

In quick succession, he has lifted currency controls; settled a decade-long lawsuit that blocked Argentina from international capital markets; launched a $16.5bn bond, the largest ever in emerging markets; begun to compile and release accurate national statistics for the first time in a decade; and hiked heavily subsidised utility tariffs. Buenos Aires has also openly criticised democratic abuses in Venezuela in a rare example of regional leadership but in keeping with Macri’s simple desire “to tell the truth”.

This no-nonsense approach has refreshed a country suffering from populism fatigue. Nine months on, Macri still enjoys approval ratings above 50 per cent. Such continued popular support is particularly impressive given that his reform programme is being delivered by a minority government, and by a president known for his standoffish lack of charm in a country that often prefers warmth and flair.

Still, however impressive this might be, is it enough to declare that it heralds a “new” Argentina, given that the country — a century ago, one of the world’s 10 richest — has suffered so many false dawns?

“No non-Peronist government has ever finished its term, so everyone always asks: what is different this time?” says Emilio Ilac, chief executive of Puente, an investment bank in Buenos Aires. “It is a legitimate question.”

There are several reasons why Argentina could be different this time. First is the quality of Macri’s government. It is stuffed with competent officials, many of whom have given up high-flying private-sector jobs abroad. “In 50 years, I have never seen such an influx of competence,” says Martín Migoya, chief executive of Globant, a Buenos Aires-based tech company. “It gives me confidence, however difficult the situation. It may even be a model for the rest of Latin America.”

Macri’s appeal to Argentines to save energy in a bitter winter provoked public ire

Much of Macri’s administration also comes from a younger generation that does not automatically define itself in reaction to the military dictatorship. “It’s a different mindset,” says Sergio Berensztein, a political consultant. “It allows them to be instinctively pro-market, a first for this country.”

Furthermore, although the economy is in recession and 40 per cent inflation is biting hard, the mess Macri inherited “is not as big as the sovereign default of 2001, which Néstor Kirchner had to deal with, nor is there hyperinflation, which [Carlos] Menem [president from 1989 to 1999] had to face,” Berensztein adds.

The second reason is an increasingly flattering comparison with the previous administration, thanks to a series of mind-boggling corruption scandals. This has fractured the opposition Peronist party, helping Macri win political support. In just the most recent example, police in July opened an investigation as to why Fernández’s 26-year-old daughter kept $4.6m in a safety deposit box (both women say they are innocent and victims of a smear campaign).

The third reason is the government’s reform programme. This combines openness to the world and business-friendly regulation, with sensitivity to social issues and domestic politics. Indeed, despite a reputation for chilly bloodlessness, Macri has maintained social programmes; austerity has so far only included tariff increases. Domestic energy prices, frozen for a decade, quadrupled in March, yet even then remained below production costs.

This is pragmatic but risky, as unrestrained government spending in response to popular pressure is a perennial Argentine Achilles heel. An early warning came in July, when Macri suffered his first pot-banging public protest. He had appealed to Argentines to save energy in the middle of winter by cutting down heating. But as he had recently been photographed at home with his wife, who was barefoot and in shirtsleeves, the appeal provoked public ire and and the march, which though small, was not insignificant.

Argentines, for the most part, have bought into Macri’s approach — for now. The challenge is to convince them that the new approach will stick — and beyond the end of this administration.

Here, too, there is a “sequencing plan”. Officials hope that by October next year, falling inflation and a recovering economy will help Macri’s coalition win a majority in congressional elections. That, in turn, would help the president press on with tougher structural reforms, such as the corrupt judiciary and Argentina’s oligopoly-ridden economy, and so win a second term.

But nobody said forging a new Argentina would be easy. Remarkably, there is already rumoured jostling among Macri’s ministers as to who might follow him as president in 2024. A sign, perhaps, that some things in any new Argentina, such as the inflated egos that its talented countrymen are teased about, may never change?