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One Year of Macri: When Politics Holds the Economy Together

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14.12.2016

An exclusive English translation of the article ‘Cuando la política sostiene la economía‘ by José Natanson for El Diplo.

President Mauricio Macri dances for the crowds on Plaza de Mayo during his inauguration ceremony (Photo: Patricio Murphy)

We’ll start the review of President Mauricio Macri’s first year looking at politics. Coming with the weakest parliamentary representation since the return to democracy, the government avoided the threat of a legislative paralysis by creating coalitions that supported controversial laws such as the agreement to pay bond holdouts or the tax amnesty. The opposition, with a formal majority but politically splintered, was only able to impose one major initiative, the anti-layoff law, which the president vetoed seemingly without paying as big a political cost as when Cristina Fernández de Kirchner vetoed the 82% pension bill in 2010. In the same vein, the deteriorating social climate has not led to the anticipated general strike from major unions or mobilisations from social groups capable of altering the status quo.

In other words, the diagnosis of ‘austerity without rebellion’ that we formulated two months ago remains in place, though the Macri administration still needs to get through December, Argentina’s dreaded month for governability. The tragedy of Cromañón (2004), the looting (2013), and the violence in Parque Indoamericano (2010) are reminders that since 2001, all Decembers threaten to be another 2001. President Macri knows this and, well-advised, acted in the only way possible: returning to the old trick of distributing resources such as the public-sector Christmas bonus, eliminating taxes on the medio Aguinaldo, and the social emergency initiative. In other words, ‘dipping into the till’, an expression used so often during the Kirchnerist but now mysteriously absent in the media today.

On the other hand, the economic balance is unfavourable, whichever way you look at it. GDP will fall by around 2% in 2016, matching the worst year for growth during the Kirchner era. Inflation will reach the highest level since 2002 and exports, measured in volumes, will both fall and become more concentrated in primary goods. The social impact is well known: a fall in purchasing power of around 5%, more poverty (32.2%) and more inequality (the Gini coefficient moved from 0.400 in 2015 to 0.417 in 2016).

On revising the economic year that is about to end, the impression is that after the initial round of shock therapy (removing export taxes, devaluation, tariff hikes, opening up the telecoms market by decree), the government was left without ideas and that now, with results not meeting expectations, it looks disoriented. Why, if we did everything we were ‘supposed to do’, things aren’t going well?

A mix of candour of the boys from tBuenos Aires’ wealthy northern suburbs and the dogmatism of business leaders seems to guide some of PRO’s fundamental economic convictions. Like, for example, the idea that removing state regulations would unleash dormant animal spirits in society and generate a Schumpeterian boom of entrepreneurial activity that would increase the number of disruptive discoveries and revolutionary start ups. To critique this is not about questioning a bet on innovation, which is crucial in any development strategy, but this is unlikely to ever prosper in a hostile macroeconomic climate that rewards financial speculation over entrepreneurial risk.

In the same manner, the theory that seeking quasi “carnal relations” with Western powers would result in anything more than friendly diplomatic gestures is being exposed as misguided. Looking closely, since the return to democracy in 1983 the two political cycles that stabilised the economy and encouraged growth – the Menem and Kirchner eras – managed to synchronise with global trends. In the first case, this was dominated by globalisation, the opening up of trade, and cheap capital, at least until the 1995 Tequila Crisis. In the second, it was the commodity boom, the rise of new global powers, and closer integration within Latin America (at least until the Lehman Brothers collapse in 2008).

Whether good or bad, Macri’s economic plan seems to be designed for a world that no longer exists, in a geo-political context in which the countries which Argentina is looking to open up to are electing leaders that reject international trade agreements and propose a return to protectionism. As the recent APEC summit showed, free trade seems more an objective for China now than the US.

Faced with a reality in which cold statistics reveal that standard causal relationships – monetary emission leads to inflation, deregulation leads to.....