Argentina Comes Back into Vogue after Macri Wins Presidency

Macri Promises Economic Reforms to Bolster Growth

Getty Images / Andres A Ruffo.

Argentina may have experienced the world’s biggest default nearly 15 years ago, but Mauricio Macri’s presidential win could signal a new beginning for the Latin American country.

Mr. Macri is a wealthy businessman and two-term mayor of Buenos Aires that has promised to make sweeping changes to the country’s troubled economy. In the months leading up to his victory, the country’s benchmark stock index soared more than 30% amid expectations of a victory in the polls.

Beleaguered debt markets also recovered following the election, following campaign promises to make settling old debts a priority.

In this article, we'll take a look at some changes that Mr. Macri has proposed, some hurdles to implementing those changes, and what it means for international investors and other countries across Latin America.

Making Tough Changes

Mauricio Macri’s new policies should certainly help bolster the economy and attract international investments, but there may be some short-term pain before long-term gains.

Foreign reserves are at a nine-year low after being raided by the former government to finance public spending projects, while the budget deficit has soared to its widest levels in nearly three decades. Mr. Macri will need to implement sweeping budget cuts in order to improve the fiscal picture, although the privatization of government-controlled entities and investments could help reduce the impact, alongside other measures like reduced export taxes.

Inflation also remains rampant throughout the country, with unofficial estimates pegging the rate at north of 20% per year. In order to combat inflation and enhance its reserves, the country will almost certainly devalue the Argentine peso rather than trying to spend reserve currencies to defend it in the international markets.

These dynamics could dramatically hit consumer spending and take a toll on the economy in the near-term.

Long Term Benefits

Oxford Economics believse that the Argentine economy will contract for the next two years before rebounding to post-growth of more than 5% by 2019.

Mr. Macri’s largest initial victory will be in restoring confidence among international investors – particularly in the bond markets – enabling the country to access much needed capital through the issuance of bonds. In addition, he will establish an economic cabinet of six ministers that will handle issues that range from finance to infrastructure. These moves should help create a basis for long-term growth through progressive economic policies.

Mr. Macri’s victory could also provide a boost to opposition parties throughout Latin America, such as those opposing Venezuela’s government under Nicolas Maduro. With commodity prices remaining depressed, many of these countries are struggling to maintain populist policies that have a detrimental impact on the economy over the long-term. Political changes could bring about a recovery in many Latin American emerging markets.

Key Takeaway Points

  • Mauricio Macri became Argentina’s new president and promises numerous economic reforms designed to reverse Peronist policies of the past.
  • Investors cheered Mr. Macri’s election as the new president with a 30% jump in the country’s benchmark equity index and a sharp recovery in bond prices.
  • While Mr. Macri’s policies should help the economy over the long-term, there will be a lot of short-term costs that are necessary to pave the way.
  • Mr. Macri’s victory could also help boost opposition parties throughout Latin America, including opponents to governments like Venezuela’s.