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Viewpoint: Argentina's New Leadership – What's Next?

Mauricio Macri

Mauricio Macri on election night. (Image: AP)

December 04, 2015

Principles of Macri-economics: what the new govt has to do to get Argentina growing again.
Does Macri possess the political capital, necessary tools, skills & experience to succeed as Argentina's president?

Change is coming to Argentina. Mauricio Macri takes office on December 10 after 12 years of Kirchner presidencies. Juan Cruz Díaz and Heidi Lough of Buenos Aires-based Cefeidas Group outline what’s in store for Argentina after inauguration day.

A historic win for Mauricio Macri

In Argentina’s presidential runoff election on November 22, Mauricio Macri of the Let’s Change coalition triumphed over Daniel Scioli of the Victory Front (FPV) in a historic defeat for the Cristina Fernández de Kirchner administration and Peronism more broadly.

As such, Argentine politics will enter unchartered territory starting December 10: Macri will be the first democratically elected president in almost a century who is neither a Peronist nor a member of the Radical Civic Union (UCR), and his Republican Proposal party, known as PRO in Spanish, will be the first in almost 30 years to control the presidency as well as the key electoral districts of Buenos Aires city and the Buenos Aires province. Macri will face major challenges as he attempts to consolidate his leadership, but if he succeeds in overcoming these, the incoming administration has the potential to exploit the many opportunities now available to them and put Argentina back on the path to economic growth.

Big changes, bigger challenges

While there are many implications for Argentina of a Macri victory, the opportunity to revive the country’s sagging economy is the most significant. Although he is not taking office in the midst of an economic meltdown—as occurred in 1983, 1989, and 20022003—the Macri administration will need to make several policy adjustments to enhance Argentina’s presence in international markets, generate investor confidence, and pursue economic sustainability. While Macri campaigned on pledges of sweeping fiscal reforms, exactly how he will address Argentina’s substantial structural problems remains unclear. However, the gradual lifting of currency controls, the normalization of energy tariffs, negotiating a settlement on Argentina’s defaulted debt, and a devaluation of the peso are actions expected in the short- to-medium term. Pending a swift resolution of the holdouts issue, the Macri administration is likely to focus on attracting international investment to replenish the country’s international reserves.

The implementation of these changes will depend on Macri’s capacity to manage expectations and skillfully navigate a multiparty system. He will need to consolidate his coalition, which has already faced the setback of UCR leader Ernesto Sanz’s withdrawal from the next government. As he will lack a majority in the Chamber of Deputies and the FPV will retain the power to block motions in the Senate, Macri must also negotiate with opposition deputies from the outset in order to deliver on promised reforms. His biggest challenge may well be making essential macroeconomic adjustments while minimizing social costs. Even if Macri does garner sufficient political support to push legislation through Congress, he is likely to face considerable opposition from powerful labor unions and the public when he eventually implements austerity measures.

In short, the key unknown is whether Macri possesses the political capital, necessary tools, skills, and experience to succeed as president. However, Macri surmounted similar challenges as mayor of Buenos Aires, which bodes well for his ability to govern effectively at the national level.

Macri’s cabinet will be larger and more diverse than that of the outgoing one, featuring PRO party loyalists, market-friendly economists, experienced leaders from the private sector, a handful of coalition allies, and one minister from the Fernández de Kirchner administration. Fiscal policy changes will be put forward by a six-member economic cabinet, to be presided over by former Central Bank President Alfonso Prat-Gay, with Marcos Peña managing as chief of staff, via one of his secretaries, the duties of the six ministers. Macri’s cabinet appointments and composition promise a fresh political dynamic, although it remains to be seen how this will operate in practice.

Broader outlook: Shifts in foreign policy and South American relations

Argentina is expected to undergo a dramatic shift in foreign policy under the incoming administration. Macri intends to end Argentina’s memorandum of understanding with Iran, and has suggested he will move away from Russia while seeking to rebuild bilateral ties with the United States and Europe. This will be a delicate process, but the appointment of Susana Malcorra, former chief of staff to UN Secretary-General Ban Ki-moon, as foreign minister represents an encouraging start.

The ramifications of Macri’s win are also likely to be significant at the regional level. Macri has pledged to seek sanctions against Venezuela within Mercosur, a potential opportunity to claim regional leadership in the early stages of his presidency. As such, his coalition’s achievement should be viewed in the context of a broader political shift in South America toward the center. Macri’s election and presidency might play a role in a regional convergence that could mark a new era in hemispheric politics.

Juan Cruz Díaz is a special advisor to the president & CEO at Americas Society/Council of the Americas and a managing director at Cefeidas Group. Heidi Lough is an analyst at Cefeidas Group.