Argentina’s new opportunity after the people’s sound judgment shown in recent legislative elections

By Alberto Navarro, Partner


The government’s victory in last October 22 elections is without any doubts the commencement of a new, more mature, democratic-republican era, hopefully aimed at building, at last, a different future for Argentina and the region.

With renewed legitimacy and trust, the government not only gained power at Congress but also prevailed in the country’s five more important districts: the Capital City and the provinces of Buenos Aires –38% of the national electorate, Córdoba, Santa Fe and Mendoza. Cambiemos (the current government party) thus consolidated as the first national power with 41% of the votes throughout the country, winning in 13 out of the 24 provinces, a sidereal electoral difference as compared to 2015 when President Macri took the presidency then with minimum margin.

It is also confirmed that the kirchnerism’s chance of being again an alternative to take power in 2019 is practically null; the peronism in a deep crisis and challenged to find a new leader President Macri, now with high chances of being reelected. We can hence speak about a change of cycle, without exaggerating.

What’s the formula for success? It’s not only the ideological fatigue after 12 years of populism; neither an improvement in the economy which, far from recovering in 2016, barely began showing stronger signs of growth in the third quarter of 2017.

On the contrary, the average Argentine voter perceived an efficient and honest government administration, combined with an approach by the government to society, which it strives for uniting and listening to; opposite to the squandering of public goods, corruption, social gap, stubbornness and growing poverty that were the seal of the populist government of the last almost fifty years, and that made poverty go from 3% in the 1970’s to +30% in the last decade, in this  granary of the world, with capacity for producing food for almost 20 times the country’s population.

The feeling of change on the day-to-day is notorious, without big announcements, and that contribute to improving the citizens’ life quality. Also, the fact that the government speaks with the truth: an example was not hiding during the campaign that the day following the elections the price of fuel would increase and the fiscal adjustment would deepen.

Furthermore, the particular sensitivity of the government towards the more vulnerable social sectors is also observed, something that is in itself a strong blow to the supposed peronist leitmotiv, but who always used the poor to perpetuate in power.

Finally, it is worth mentioning that people felt that the government has cared for the restoration of social peace, dialogue, tolerance, order, respect and equal protection and the rule of law, education and labor culture, all values destroyed ex profeso by kirchnerism.

Now, with this outstanding electoral result, the center-right political party Cambiemos bet much more than on obtaining more seats in parliament. While in the one hand is far from achieving its own majority, on the other hand, is worth noting that it will be first minority in both chambers with proven skills and dedication to gaining consensus to try to carry out, in the immediate term, the huge reforms that would allow the country to become competitive, efficient and equitable at the same time.

It may be expected that most part of opposition –witness and party of the Argentine disaster back then, if more mature, will have no option other than joining and support the claimed State policies with a government that has been rewarded precisely due to its strategy of seeking to agree on almost everything, while at the same time firmly acting, and which after the 10/22 elections is on a much better negotiation position.

Thus, determined to avoid governing through presidential decrees, as well as to terminate with traditional superpowers of permanent economic emergency laws –used and abused by previous Argentine governments, on Monday 23 the government convened the political leaders from opposition, governors, majors, unions, businessmen and even judges with the purpose of reaching consensus and negotiating as wide and audacious as possible state policies which include, among others, an integral fiscal reform, a labor reform, the unequal and unsustainable retirement system and the criminal code, together with the strong reduction of unproductive and political expenditure  and a new and fairer co-participation of the provinces in the federal tax distribution.  The kirchnerism was left out of the appointment, though by its own will.

The first gathering took place on October 30, where the President’s intention to move on quickly with the reforms longed for decades was left clear, and in his opinion require the minimum consensuses in the short term. This call from the government to draft jointly a long-term agenda is considered by our political analysts as something politically unusual, without precedents in the history of the country.

On the economy front, and while a soon and necessary recovery of our partner Brazil is expected, the situation is better than in 2016, and no financial crisis risk is felt in the medium term, despite the importance of leveraging the electoral push in order to consolidate, with fiscal discipline, the mentioned reforms.

The challenges will continue residing on the front attack of the still high inflation and fiscal deficit (historical reason of all the imbalances and cyclical Argentine crisis), which at the same time will allow to reduce the high level of indebtedness (sole remedy available at the time to finance the transition), the still relatively high country risk and, consequently, interest rates.

Aside from exchange rate issues, focus is to be put on the need to improve competitiveness –mainly through a reduction of the high tax pressure, although without disregarding the fundamental goal of reducing the fiscal gap. Regarding this short blanket issue, the challenge shall then reside on improving the quality of the expenditure, on which the government appears to be working. And also, the logistics costs comprising also the unfortunate Argentine cost.

As compared to last August, an economic growth of between 2.5 and 3% of the GDP can be expected for this year, and up to 4%  for 2019, as well as the reduction of inflation from its current 22% yearly to one digit (or almost) by then.

The doubts for those who did not yet enter the country are still whether the changes achieved in such short term will allow a reduction of the regulatory risk, a goal that carries the long-term notion and that so far has had the effect of delaying announced investments and PPP’s in the infrastructure sector.

We are convinced of the government’s interest in showing the world a sort of turning point in this aspect as part of the challenge to reconcile the traditionally fragile Argentine institutions with modern capitalism.

The opportunity of showing off could not be better by November 2018 when Argentina will be for the first time host of the G 20 summit and probably by then the country will have regained the financial category of emerging market and entered the OECD, something unthinkable less than two years ago.

The fact that all these good news imply a sort of cultural change, after almost 80 years of quasi peronist-militar-populist alternation, can only illusion those of us who expect to see in Argentina a country that resembles a little more to Australia or New Zealand. Blowing winds are encouraging.


Buenos Aires, November 2017