Event

As previously reported (see here), centre-right candidate Mauricio Macri won Argentina’s presidential election in November, largely owing to voter fatigue with the unsuccessful interventionist macroeconomic policies of former president Cristina Fernández and her left-of-centre Victory Front (Frente para la Victoria, FpV). By consequence, since assuming office on 10 December, Macri has not wasted any time to reverse many of them. In an effort to boost foreign exchange earnings, taxes on exports of wheat, corn, beef and manufactured goods were removed altogether, while those on all important soybean exports were reduced from 35% to 30%. The government also announced plans to greatly reduce the administrative burden faced by importers. Yet in terms of advancing business confidence, the boldest move by far has been the complete elimination of foreign exchange controls. This caused the Argentine peso to plummet by more than 25% vis-à-vis the US dollar overnight.

Impact on country risk

President Macri’s quick dismantling of interventionist policies illustrates his ambition to undo current macroeconomic imbalances. Evidently, he hopes to improve medium-term prospects by furthering investor confidence. Success is far from assured, though. Most clearly, the steep depreciation of the peso stands to further stoke inflation, which will complicate the necessary fiscal consolidation by leading to increased wage demands from public employees. What is more, the issue could possibly inspire costly protests and strikes, especially given the high level of political polarisation in Argentina. In this context, note that Macri’s alliance (Cambiemos) lacks a legislative majority and that the new president has used decree powers to push through many changes. This risks alienating possible partners in Congress, which will be needed, not least in order to work out a solution regarding the ‘holdouts issue’ (see here) so as to regain access to international financial markets.

Analyst: Sebastian Vanderlinden, s.vanderlinden@credendogroup.com