Tuesday, November 24, 2015

Argentina's Anti-incumbency verdict

The election of Mauricio Macri  as the President of Argentina in the elections held on Sunday, is an anti-incumbency verdict.  The Argentine economic situation had been steadily getting worse in the last five years with high inflation, shortage of foreign exchange, isolation from the global capital markets and low growth. President Cristina Fernandez de Kirchner had run out of ideas  and had been in denial mode. Her government had resorted to blatant cooking up of statistics showing single digit inflation while it had been over 20% annually in the last five years. Her antagonism to private sector business, unpredictable policies and the arbitrary restrictions on imports and foreign exchange had hurt the business and the middle class. The poor people, who form a solid vote bank of the Peronist party, were hit even harder by inflation and unemployment. Some of the Peronist voters had, therefore, switched loyalty and decided to give a chance to Macri's promise for change . 

Macri's market-friendly approach should reboot the economy and revive the industry and agricultural sectors which had remained paralyzed under the command and control approach of the outgoing regime. Macri's business family background and  his track record of competent administration during his two term Mayorship of Buenos Aires should restore investors' confidence.

Wall Street will hail Macri as the latest pro-market poster boy of  Latin America. The anti-neo liberalism brigade should, however, note that Macri will not be a worse sinner than the Peronist President Menem who got the country into the 2002 crisis with his neoliberalistic policies including unsustainable exchange rate regime and wholesale privatisations in a hurry.

Macri should be able to a turn around the economy soon, just as President Nestor Kirchner did so successfully in 2003. In fact, Macri's challenge is much smaller in comparison to what Nestor faced  after the historic crisis and collapse of the economy in 2002.  Nestor should be given full credit for rescuing the Argentine economy quickly with his unorthodox and bold policies and handing over to his wife in 2007 a reasonably sound economy with robust growth. It is a pity that she mismanaged it, taking it back almost to the brink of another crisis.

Argentina does not have any serious unsolvable fundamental problems. It is blessed with large area of fertile land, abundant water, mineral riches, hydrocarbon reserves and an educated homogeneous population of just forty two million. It is free from racial, religious and ethnic conflicts.  The current economic problems are basically short term in nature, caused by the fall in demand and prices of its commodity exports, besides incompetent management.  

The foreign policy of the country will undergo a major change under Macri. He will not be friendly to the leftist governments in the region which enjoyed close rapport with President Cristina. He will seek suspension of Venezuela from Mercosur on the ground that it does not meet the democracy clauses of the group's charter. He will extend proactive support to the Venezuelan opposition. Macri cannot afford to displease President Dilma Rouseff too much since Brazil is the largest trading partner with lot of mutual investment and stake. He will, however, shake up Mercosur which is stuck with introvert and outdated protectionist mindset. Macri promises to move closer to the countries of Pacific Alliance (Chile, Colombia, Peru and Mexico) which is perceived as a rival to the Brazil-lead Mercosur. Macri's approach to China will be more calibrated unlike President Cristina who wooed China desperately for financial help. 

Macri will open up to US with which the Kirchners had uneasy relations. The Americans had kept Argentina at arms length after Nestor Kirchner joined hands with Chavez during the 2005 Summit of the Americas and killed the American proposal to establish a hemispheric Free Trade Area of the Americas (FTAA).  President Cristina craved for a White House invitation to visit  but the Americans refused.  

Although President Cristina flaunted Argentina's G-20 membership, the country was not taken seriously  due to the huge gap between her radical rhetoric and the reality on the ground. But under Macri, the country will get a higher profile in the global stage, as it did under President Menem. 

Macri will certainly continue Cristina government's policy of friendly ties and cooperation with India. Conscious of the importance of India as a major market for Argentine exports and as an emerging global power, Macri had visited India in 2010 to get a feel of the country. He spoke warmly about India when he inaugurated the TCS global delivery centre in Buenos Aires in 2009. 

Macri is on the left side of Ramadorai

The Indian exporters and companies with investment in Argentina are excited about the opening up of the market by Macri. Argentina, which used to be India's third largest trading partner, is now relegated to the sixth rank. India's exports to Argentina is just about half of the exports to Peru, although Argentina's GDP is double that of Peru.

The Argentine verdict is inspiration to the centre-right opposition parties hoping to replace in the next elections the leftist governments in Brazil and Venezuela which are also mired in severe political and economic difficulties. Some western commentators have hastened to pronounce the end of the Left in the region. This is wishful thinking and wrong conclusion. Centre- right governments have also been voted out of power in recent years in Chile and Nicaragua where the Left is back after sitting out in the opposition for some time.The same could happen in Argentina too, if Macri does not deliver. He should remember that the previous centre-right government of Fernando de la Rua was overthrown by mass protests in December 2001 (just two years after coming to power) when it was unable to handle the economic crisis. It is performance which matters more than ideology in the Latin America of today. 

The version published by The Wire on 24 November