Argentine President Mauricio Macri and his team can take a bow for their first year in office. Despite Macri’s outsider status and his party’s limited influence in the Congress, he in short order took on the country’s biggest economic distortions—unifying the exchange rate, resolving the fight with international creditors, cutting energy subsidies, reestablishing credible statistics, and eliminating a whole host of tariffs, quotas, and export licenses.
Now comes the harder part. Macri needs to capitalize on continuing international investor and domestic Argentine support to push through more fundamental changes, restructuring the state and the economy to enable longer-term sustainable growth. In order to accomplish these weighty goals, Macri must not only stay the economic course set during his first year, but also double down and take on Argentina’s outsized reliance on public spending.
The rewards from Macri’s exertions are just beginning, as at least some economic indicators are finally turning in Argentina’s favor. Inflation is falling, recession is slowing, and some sectors—agriculture, real estate, and construction in the capital city—are on the rebound. These beginnings of a turnaround will make it easier for Macri to continue taking measures to open up the economy.
The disarray within the opposition Justicialist Party (PJ)—better known as the Peronists —eases the way as well. Though the PJ was the dominant political force for decades, continuing recriminations over last year’s electoral losses, corruption investigations into former President Cristina Kirchner and her aides, and differing views on how to respond to Macri’s strategic carrot and stick offerings have kept party leaders divided. Some factions were even disinvited to October’s Day of Peronist Loyalty, as political rivals were unwilling to stand side by side for the annual photo opportunity. This has enabled the Macri administration to push through legislative reforms despite its minority position in both houses.
Most surprisingly, Argentines are being uncharacteristically patient. Despite high inflation, unemployment, and stagnant growth, recent polls show the majority of the population is still giving the president the benefit of the doubt, believing that this year will be better.
All of this suggests that if the government can boost growth, it may do well in next October’s midterms, gaining seats in Congress and the symbolic mandate to continue on a market-friendly path.
Yet at the same time, the challenges to Macri’s…