Mauricio Macri: Making Argentina Great Again
Economic populism offers much to dislike for believers in free markets. For starters, it usually entails citizens’ demanding that the government “work for the people” (i.e. give “the people” other people’s money).
The presidency of Mauricio Macri in Argentina offers an example of the difficulty in reversing the results of decades of such devastating populism — even in a country with a well-educated and relatively skilled citizenry.
At the turn of the 20th century, Argentina represented the economic pearl of Latin America. Its per capita income was five times that of Brazil, and 50 percent higher than Italy — from which it drew most of its immigrants. In fact, in 1914, half of Buenos Aires’s population was foreign born, and its GDP had grown at 6 percent annually for 43 straight years.
But with the onset of the Great Depression, Argentina embraced economic nationalism, culminating with “Peronism,” named after its populist leader Juan Peron (president 1946-1955, 1973-74).
Although it subsequently experienced a string of governments from both ends of the political spectrum, the Kirchner presidents — Nestor, followed by his wife Christina — from 2003 to 2015, carried on the populist isolationism of their predecessors with a definitive leftist flavor. Argentina borrowed and spent irresponsibly, causing widespread economic depression and rising domestic disapproval. But like Venezuela — which created a Ministry of Happiness to keep populism alive — in June 2014, Mrs. Kirchner appointed a Secretary of National Thought — a philosopher who would "build networks among academics and intellectuals” to think about joint projects in Latin America. This drew sharp criticism from Kircher’s opponents, who argued that Argentina needed action, not thinking. Lower house conservative leader Federico Pinedo even deemed it “old-style fascism."
One month later, in July, the country defaulted — its third default in less than three decades.
According to the Fraser Institute’s Economic Freedom of the World project, Argentina fell from 34th best in 2000, to 137th best in 2011 — in league with the likes of Mali, China, Nepal, Gabon, Ecuador, and Mozambique.
In 2015, however, the Argentinian people had lost their taste for economic nationalism. Right-of-center businessman Mauricio Macri, with his “Cambiemos” (Let’s Change) coalition, managed to defeat Kirchnerist populism.
Upon assuming office, Macri quickly removed capital and currency controls, and began paying the country’s creditors. His government also cut subsidies and tariffs, causing inflation to fall from 48 percent last year, to under 25 percent, and it is expected to drop to as low as 16 percent in 2018. This has slowly improved Argentina’s international standing, attracting foreign investment, and growing its economy.
Between January and October, American investors poured a net $1.2 billion into Argentine stocks and funds — four times more than they invested during the same period last year, and 12 times more than in 2015. And just last month, Volkswagen announced that it will invest $650 million the country, and the Spanish banking giant Santander announced that it will invest $550 million. Even billionaire George Soros is getting in on Argentina’s venture capital market, which is now the third-largest in Latin America.
The increased foreign investment has caused Argentina's stock market, MERVAL, to rise by 63 percent this year, making it the best performing stock market in the world. Meanwhile, its economy saw 4.3 percent GDP growth in the third quarter — the best since Macri became president. In fact, Goldman Sachs estimates that growth will top all of Latin America for 2017.
Macri’s reforms also paid off politically in October, as his coalition won the country’s midterm elections, even though former president Christina Fernandez de Kirchner won a Senate seat. Although Macri's coalition still does not hold a solid majority in the Congress, many believe it has enough influence pass tax and labor reforms; and in November, he managed to pressure nearly all of Argentina's governors to cut their own provincial spending.
An added political bonus for Macri is the arrest order out for Kirchner, who is accused of treason, by shielding Iranian terrorists in exchange for trade concessions while she was president. Although the Senate is unlikely to strip her of senatorial immunity, it will likely further weaken the leftist, populist coalition that she led for nearly a decade.
But even Macri and his coalition cannot wipe out nearly a century of leftist policies in one term. Despite the market reforms, today, Argentina's economy ranks third out of 65 countries in Bloomberg's Misery Index. Even if a market-friendly government received free reign over a country’s depressed economy, it would still take years to turn it around — just as it takes years for a socialist government to depress a country with lots of accumulated capital (See the Nordic countries.).
Hopefully, Argentinian voters will maintain the necessary patience to bring their country back to greatness, and steer clear of protectionism.