You’ve been waiting for this moment. A new administration in Argentina that would finally put an end to some pretty bizarre economic policies that have closed the doors to your exports. A new start that means that Argentina can finally be back on your radar.
Photographer: Axel Indik/Bloomberg
Is it too good to be true?
For those of you not quite following Argentinean politics, let’s recap: the country has been pursuing strong protectionist policies for over ten years, making it incredibly difficult for foreign companies to sell to Argentina (and buy from it, sometimes, too). The country is now one of the continent’s worst economic performers (often compared to Venezuela), with rampant inflation, slow growth, mounting debt, foreign exchange crisis and another myriad of problems.
The current populist government under Cristina Fernandez, which wasted years of prosperity and record-growth, has been blamed for this. So when Argentineans voted last month for change, for pro-business, former Buenos Aires mayor and opposition leader, Mauricio Macri, the world took notice.
But what can you really expect?
Sitting on the other side of the River Plate in Uruguay, a small country highly dependent on its unstable neighbour, I tell you, we seem to have a very sensitive barometer for anything and everything that happens in Argentina. And this is how I’d summarise it:
1- Transition will be tough.
“No-one knows what the new government will find in those drawers”, is a commonly use phrase here, and it doesn’t help that the exiting team has refused to cooperate with the new one. Expect a good 4-6 months of transition, so more instability.
Hard work to get the country back to normal again.
2- There are no miracles.
Argentina is in a real mess and Macri and his team are no wizards. They can’t turn it around overnight, particularly without a real majority to govern.
3- Devaluation
Inevitable. Which means your foreign prices will suddenly seem rather high to Argentineans (at least to those with income in pesos, whether businesses or individuals). However, devaluation could also boost agriculture, one of Argentina’s strongest sectors, particularly exports.
4- Capital controls
Closely linked to a debt deal with “holdout” creditors, an end to capital controls looks achievable, but difficult. This all relates to imports and exports, too, so watch this space.
5- Mercosur
The new government is quickly building bridges with crisis-struck Brazil, its largest partner in Mercosur. However, Macri is not keen to keep Venezuela in the bloc. Let’s wait and see.
What we have been waiting for is for Mercosur to work hard on a free trade agreement with the European Union. The general understanding was that Argentina was the main obstacle to take this further, but Macri has made it clear that he will work on this direction. Only time will tell, but we’re definitely closer now than under Mrs CFK.
Buenos Aires is one of my favourite cities in the world.
6- UK relations
Macri has also promised a “less aggressive stance” regarding the Falklands. Good news, indeed.
In my opinion, Argentina right now is only for the brave (high risks could potentially yield high returns, mind you) and those with cash to fund expanding at this stage. The rest of us can only wait and see. And hope that Mr Macri has the power, the skill and the time to help Argentina shine again.
I think that is a very accurate assessment, Gabriela.
You don’t directly mention the outgoing “government” and its supporters claim. that they will make the country ungovernable – whatever happened to democracy!! Good luck Sr. Macri!!
a very good analysis Gaby. Congrats.