The Honeymoon Is Over for Argentina's Macri

Nicholas Borroz

Economics, Americas

The post-Kirchner president faces an uphill battle to pass further reforms.

The international investment community is smitten with Argentina’s new president, Mauricio Macri. A wealthy businessman who was voted into office in November 2015, Macri vows to facilitate foreigners’ access to his country by reducing trade barriers. Additionally, he plans to cut domestic subsidy programs, which will improve Argentina’s economic stability and therefore make it a more attractive investment destination.

Macri’s neoliberal approach contrasts starkly with that of his predecessor, Cristina Kirchner. She shielded Argentina from foreign investment in order to grow domestic businesses, imposing currency controls and restricting trade. Domestically, she instituted a comprehensive web of subsidies. These trade barriers and costly welfare programs are the primary targets of Macri’s economic reform.

After nearly a decade of populist and protectionist rule, Macri’s approach has been likened to shock therapy: necessary but painful. And so far, the results have been promising for foreign investors.

On February 29, Macri’s government tentatively reached an agreement to resolve a longstanding international legal battle that has tarnished Argentina’s reputation abroad. Fifteen years ago, the country defaulted on $100 billion in debt. Since then, most of Argentina’s creditors have accepted a debt restructuring, but a small group of creditors have steadfastly refused to be shortchanged. Kirchner maligned these “vulture funds,” and a resultant legal dispute with them severely hurt Argentina’s international image, locking the country out of many capital markets. But in February, Macri’s government announced it was closing in on a deal to repay these holdout creditors.

Another indication of the international investment community’s satisfaction with Macri occurred a week before the creditor settlement. Dan Ammann, the president of auto manufacturer GM, indicated that Brazil should adopt more business-friendly policies like those of Argentina. He said this while discussing his company’s potential scale-down of operations in Brazil, which is reeling from economic malaise and a corruption scandal. Ammann stated that Argentina shows “how the situation can quickly change with the right leadership of the economy.”