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Macri-economics 101

23 November 2015 By Martin Langfield

Mauricio Macri’s victory in Argentina’s runoff presidential election on Sunday may light the way for Brazil. The uncharismatic, conservative mayor of Buenos Aires won with promises to break with the populism of fiery outgoing leader Cristina Fernandez and push through reform in Latin America’s third-largest economy. How he fares in his four-year term may prove instructive for the country’s larger neighbor as the electorate there weighs who succeeds its own leftist president, Dilma Rousseff.

Macri says he wants to reduce capital controls, open up the economy and attract foreign investment, in part by reaching a settlement with holdout investors in defaulted Argentine bonds. Warnings that he will cut social spending came from his ruling-party opponent Daniel Scioli rather than Macri’s own camp, but not all Fernandez’s free-spending subsidies will be sustainable. A fiscal deficit of 7 percent looms by year-end, according to private analysts. Reserves are at a nine-year low. If he is to put his country’s economic house in order, there will be pain.

Macri will face an unfriendly Congress and a powerful Peronist political machine keen to defend social gains under Fernandez, who may seek the presidency again in 2019. Recent history is also not on his side: since the restoration of democracy after military rule in 1983, no non-Peronist president has finished his term.

If Macri manages to boost anemic growth, estimated by the IMF at just 0.4 percent this year, while staving off unrest and protecting the poorest, he may provide a model for Brazilians. Many of them are fed up with Rousseff’s bungling of the economy but still keen to preserve social gains made under her and former President Luiz Inacio Lula da Silva. A pro-business candidate similar to Macri could look more viable in 2018 elections to succeed her. Brazilians almost elected one last year in conservative Aecio Neves. Rousseff narrowly beat him, then reluctantly espoused some of his policies as the economy tanked.

Of course, there’s a chance Macri’s efforts lead to massive unrest, failed reform or huge social cutbacks. In that case, Brazilian voters may prefer to avoid adopting Macri-economics 101 and favor a more soothingly populist candidate. But the country, which is facing its own fiscal deficit woes and a recession it may barely be recovering from by 2018, wouldn’t be able to afford that.


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