Alan Cibils is an Argentine economist and Professor of Political Economy at the Universidad Nacional de General Sarmiento in Buenos Aires, Argentina.
As the United States and the world grapple with the potential implications of a Trump presidency, Argentina is evaluating the results of Mauricio Macri’s first year in office. Macri’s electoral victory on November 22, 2015, marked the end of 12 years of populist, expansionary economic policies and the return to neoliberalism. While government officials and supporters deny this, a close look at the Macri administration’s discourse on economic issues and policies implemented force the conclusion that this is neoliberalism—again.
From campaign rhetoric to economic policy
Macri campaigned as an outsider to politics (despite two consecutive 4-year terms as mayor of the City of Buenos Aires), whose main goal was to solve ordinary people’s problems. His message was that he would keep those policies of kirchnerismo (the previous two presidents were Néstor Kirchner and Cristina Fernández de Kirchner) that had worked and improve or change those that hadn’t.
However, when Macri took office it became clear that his program was a major rollback of the populist legacy and a return to neoliberalism. Macri stacked key ministries with corporate CEOs, leading some to state that Argentina was now a CEO-cracy, rather than a democracy. Bloomberg heralded Macri’s arrival to office with an eloquent “Wall Street Is in Charge in Argentina (Again).” Argentine Treasury Minister Alfonso Prat Gay stated the Macri government’s intentions clearly at a G7 minister meeting: “The world is threatened by protectionism and populism, and Macri was elected to emancipate Argentina from these evils.” In other words, Macri would do away with the populist legacy and open the economy to the world.
So, what have been Macri’s main economic policies in his first year in office?
First, exchange controls, a Kirchner-era policy strongly opposed by the middle class, were lifted. Doing so involved a 40% currency devaluation, despite campaign promises to the contrary.
Second, export taxes were eliminated on most agriculture and mining products (Argentina’s main exports). These taxes served not only as a source of fiscal revenue, but also to delink domestic market prices from world market prices.
Third, monetary policy changed radically to an “inflation targeting” regime. The Central Bank’s nominal interest rate was initially set to 38% and gradually lowered to its current 26.25%. Inflation control has become the dominant goal of macroeconomic policy.
Fourth, subsidies to utilities and public transport were slashed, dramatically increasing prices. These increases impacted greatly on households, small and medium businesses, commerce, and, of course, inflation.
What have been the results of Macri’s chosen policy set?
First, the combination of devaluation, export tax elimination, and higher utility and interest rates (a cost to businesses) have resulted in a sharp increase in inflation, almost doubling the already high rates inherited from the Kirchner years. It is expected that the inflation rate for 2016 will be about 40%.
High inflation has resulted in a considerable reduction of real wages and consumption, resulting in a recession. Economic activity indicators turned negative in March, and have yet to show a sign of recovery
The recession resulted in a substantial increase in unemployment, averaging 9.3% nationally and more than 10% in urban areas. As a result, poverty and indigence (severe poverty) have risen substantially. The official poverty rate now stands at 32.3% of the population, and 6.3% are indigent. According to a report produced by a research institute of the Argentine Catholic University, in the first five months of the Macri government, 1.4 million people newly fell below the poverty line.
Export tax reduction and high nominal interest rates have resulted in windfall profits for exporters and the financial sector, resulting in a substantial upward income redistribution. It seems that “trickle-down economics” is back in town.
The radical policy change has come with a significant change in official discourse on economic issues:
- Wages are now a cost to be reduced in order to be “more competitive” internationally. The labor market needs to be deregulated, as unions and labor legislation make labor uncompetitive. In other words, wages are no longer a source of demand, development, and welfare
- Monetarism and outdated views of money and banks are back: money is a commodity, saving (not credit) finances investment, fiscal deficits are bad and, should they exist, must be “financed” with debt.
- Strong and unilateral alignment with the United States, reminiscent of the “carnal relations” during the presidency of Carlos Menem. (1989-1999) Regional integration initiatives like the UNSASUR, Banco del Sur, etc., have been all but abandoned.
- The official approach to public debt has also changed dramatically from the Kirchners’ debt reduction strategy. The “vulture funds” were paid off according to a New York court’s outrageous ruling. The stock of both dollar- and peso-denominated debt is rapidly growing again as a percent of GDP, causing worries about its future sustainability.
- Finally, the IMF was invited back. An Article IV consultation, the first since Argentina cancelled its debt with the institution in 2006, was recently concluded. The Fund’s conclusions hold no surprises, with recommendations for more austerity, less subsidies, and a fiscal surplus. The IMF’s satisfaction with the Macri government is clear in recent documents, praising Macri’s “social sensitivity” and blaming past governments for all current problems.
Like the IMF, the Macri administration blames the significant current problems on the “heavy inheritance” received from 12 years of kirchnerismo. It is true that Macri received an economy with imbalances which needed to be addressed: outdated utility subsidies, foreign exchange constraint, moderate inflation, etc. However, the explicitly neoliberal policy set was an choice of the Macri administration: it was not inevitable or the only choice, and certainly not the best. Macri has clearly chosen to benefit the corporate and financial sectors and foreign capital over Argentine workers. With a technocratic discourse, Macri is leading the country down a road that has already proven to be disastrous. One can only hope that this time the ending won’t be as catastrophic as it was in 2001.
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