Introduction: Macri's First 100 Days

The election of pro-business candidate Mauricio Macri as Argentina's president in November has been applauded by investors and there is widespread optimism surrounding the country's future. Immediately following the election results, Moody's changed Argentina's outlook to positive from stable on expectations of a "major market-friendly break" with the policies of former president Cristina Fernández de Kirchner.

With a GDP of more than US$540 billion, according to the World Bank, Argentina is one of the largest economies in Latin America. However, in recent years, the country's fiscal situation has deteriorated with GDP growth of only 0.5% in 2014. The IMF sees growth of 0.4% in 2015 and a contraction of 0.7% in 2016. The fiscal deficit is currently at 7.1% of GDP and inflation is estimated at over 30%.

Macri won the election with a promise to drastically overhaul the country's economy. He pledged to tackle the fiscal deficit, reduce inflation and replenish low central bank reserves. The new president also said he is willing to negotiate with holdout funds to restore access to international debt markets. On December 16, the government announced the lifting of FX controls which was a key campaign pledge. Currency exchange controls had been in place since 2011.

Macri's election has been celebrated by international investors and economists

"We are upbeat on the outlook for Argentina's economy [following Macri's election]," says Edward Glossop, emerging markets economist at Capital Economics. Much will depend on how Macri fares in the first few months. "We will definitely know more within the first 100 days in office as the key is to implement policies very quickly so they can bear fruit before the mid-term elections.  If progress is slow, expectations will be lower," Glossop says. As things stand, the economist expects Argentina to fall into recession next year, but to return to sustainable growth of 3.0-3.5% by 2018.

The big risk to Macri's agenda is a lack of congressional support, as his coalition holds just over 30% of seats in the senate and chamber of deputies combined, which could result in some of his more radical reforms being rejected, watered down or delayed. "Congress will pose significant governability challenges for the new president in the two-year outlook," says Thomaz Favaro, senior analyst at Control Risks.

But while this might slow down the pace of reforms, it is unlikely to lead to significant political gridlock, Favaro says. "The president will have a series of institutional tools at his disposal to either circumvent a hostile congress or to shore up his support in the legislature; these range from necessity and urgency decrees (DNUs) to implement policies, to negotiations with provincial governors to increase fiscal transfers from the central government in exchange for support."

Macri appointed two very pragmatic people to ensure tighter monetary and fiscal policy: Alfonso Prat-Gay as finance minister and Federico Sturzenegger as central bank president. He chose former Shell executive Juan José Aranguren, another pragmatist, to head the energy and mining ministry. Aranguren worked at Shell from 1979 to 2015 and spent two decades as the CEO of the Argentine division.

Mining in Argentina has suffered the negative impacts of high inflation, as well as interventionist policies such as import restrictions and limitations on the repatriation of revenues. If the new administration can succeed in normalizing the economy and restoring the credibility of state institutions, it will improve the business climate and attract greater investment to the sector.

Figure: Argentina's Primary Deficit

Figure: The widening gap between revenue and spending in Argentina


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