Argentina’s new center-Right President has spent much of the past year pushing through (often unpopular) economic and political reforms in an effort to clean up the mess left by his socialist predecessors. But what does he have to show for it? The Financial Times reports:
Argentine President Mauricio Macri has appealed to sports fans from both his own nation and neighbouring Brazil to stop insulting each other at the Rio Olympics. He is also having to play the peacemaker at home, where his latest reform — an attempt to reduce subsidies on utility bills — has led to strikes and protests, run foul of the courts and been seized upon by his political opponents.
To give him credit, Mr Macri has not shied away from implementing unpopular measures since he came to power in December, fully aware that Argentina’s economy needs a radical overhaul after 12 years of socialist rule. He immediately abolished capital controls, quickly let the currency devalue to encourage exports and has started to cut back both regulation and the civil service.
So far, however, the new government’s pro-business reforms have had little tangible effect, not helped by the severe recession next door in Brazil. The economy is expected to shrink another 1.5 per cent this year and private analysts expect inflation of 40 per cent. Mr Macri said last week that the situation will stabilise in the fourth quarter and that next year will be much better, promising gross domestic product growth of 3.5 per cent in 2017, with inflation down to 17 per cent.
Macri has been busy trying to bring investment back to Argentina. He has worked hard to settle Argentina’s accounts with vulture creditors in the United States. In July, he met with Mexican President Enrique Peña Nieto, and the two men promised to work towards a landmark bilateral free trade agreement. But so far, his labors have borne no fruit.
In a tough macro environment, Macri was never going to have it easy. His plan to invest $7 billion in infrastructure has raised some analysts’ hopes, but there are concerns that the government will struggle to pay for it. With the pressure on him to deliver results growing, Macri sought to save money by reducing subsidies of gas. But the Supreme Court blocked his efforts on Thursday, according to AFP:
The ruling is the hardest blow yet to the business-friendly president’s move to eliminate electricity, gas and water subsidies which he says are bloating the deficit and sapping the struggling economy.
The Court found that the constitutionally-mandated process of public hearings was not carried through and that the government improperly assessed the social impact of the price hike. After a longer hearing process, it’s likely that Macri will get more modest hikes through, but with Argentina’s fiscal situation so dire, every minute and every peso counts.