Argentina’s fumbled reforms


Since Monday, there has been a gaping hole in the floor of the handsome domed building of the Argentinian stock exchange in Buenos Aires. Through it plunged the value of leading shares and the country’s currency, the peso. Stocks fell by a record 30 percent and the peso collapsed fully 15 percent against the US dollar. This financial mayhem was caused by the shock result of the first round of Argentina’s presidential election. Against all expectation, including it appears of the left-wing victor, Alberto Fernández, sitting president Mauricio Macri is now facing defeat in the final vote in October.

More than two centuries of Argentinian financial failure have produced endless chapters in economic textbooks. However, it seemed with the 2015 election of the free market supporting Macri, the country’s finances might finally be heading for stability. Macri won the presidency in 2015 with a promise to reverse the left-wing Radical and Peronist interventionist polices which had directed, many would argue misdirected, the country’s economy for a year short of a century. His key promise was to reintegrate Argentina into the global market economy.

What spooked the local markets this week was the running mate that Fernandez had chosen. Cristina Fernández de Kirchner is the former president who became embroiled in a series of corruption scandals in her two terms in office, the constitutional limit. She pursued classic Peronist policies which included the re-nationalization of pension funds, the fixing of some prices and the automatic payment of entitlements, including childcare. Her administration’s claims that these measures had lowered the rate of poverty were disputed. The economy stuttered. She was, however, popular with her pursuit of human rights abusers during the country’s military rule. The probes she instigated into the so-called “Dirty War” resulted in the conviction of more than 1,500 individuals. This brought some level of closure to the families of those, predominantly left-wing citizens, who disappeared after being seized by soldiers and members of military intelligence, in one of the darkest periods of Argentina’s history.

Unfortunately for Macri, the abrupt introduction of free market reforms backfired. It permitted a rapid build-up in public and external debt. The president was with much justice blamed for the rapid creation of a fresh financial crisis. His defense, that it was the irresponsibility of business borrowers, was undermined by the fact that both central and regional governments also went on a borrowing spree. Thus the early promise of his reforms was dashed and the IMF was called in to prop up the government’s finances to the tune of $57 billion. And the price of the IMF program was the imposition of a set of austerity policies.

Normally markets are very good at factoring in risk, especially political risk. The fact that Argentina’s Merval stock exchange index crashed by almost a third in two hours on Monday is surely instructive. It reflects an underlying problem. Argentinians have become so used to dealing with a lack of economic realities that in 2015 they found themselves ill-equipped to use common sense when debt markets were reopened to them. The borrowing binge right across the economy was doomed to lead the country straight back into financial trouble. For this Macri and his advisers must hold the primary responsibility.