Last August Parliamentary Elections: Are Great Years Coming for Argentina?
By Alberto Navarro, Partner
Last August 13, we, Argentines voted in primary legislative elections, the purpose of which was –in theory- the internal election of candidates who will represent the political parties in the national parliamentary elections of next October 22.
The truth is that these mid-term elections meant much more than that, for they were some sort of a bitter test for President Mauricio Macri’s government almost two years from having taken office. Since then, and increasingly, the international political and business saw with enthusiasm in the new government a 180° change as compared to the last 25 years of populist peronism; now the ratification by the Argentine public opinion was critically pending. Concerns were many as the economy has not yet totally recovered, and Argentines, like many, are known for voting driven in these occasions by tangible results.
The campaign and previous environment were tense, particularly because it is a fact of reality that almost all the governments that at these mid-term elections lost seats in parliament could not be reelected later; also because history proved that no peronist government was able to conclude its term in almost one hundred years, either by almost frequent military coup d’états or peronist governments strong enough to oust them.
So Mauricio Macri’s government bet -and bets- much more than to a number of representatives at Congress: what’s at stake is nothing less than the consolidation of the important reforms made in the last year and a half, and the most important to come in the next two years, something difficult to achieve without a ratification by the average voter. On our side, Argentines may wish, above all, that the kirchnerist populism –anti-republican and corrupt- be reduced to a minority that becomes gradually more insignificant and that the currently broken peronist party (Cristina Kirchner having separated voluntarily from its lines) follows on the path to transform into a more mature constructive opposition, either due to political maturity or simple instinct for survival.
In general terms, the election’s result was favorable to the government throughout the country; 8/13 thus also showing that the young political party founded by President Macri early in this century, Cambiemos, could for the first time consolidate as a national force, breaking the old peronist status-quo, reaching much beyond the Buenos Aires city frontiers, and offsetting several traditional peronist leaders.
With this result, President Macri showed once more that he is not a naive who came only to reorganize the economy from scratch and then be blamed by peronism for all the mess and chaos precisely created by peronist-linked factions. On the contrary, the government is showing to the old and distrustful establishment that Cambiemos could be a political force with inclination to take Argentina to a different republican and institutional stage, of which the country has been depriving itself for at least 80 years: a whole cultural challenge.
It is not a minor detail that former president Cristina Kirchner has only achieved a meager 0.2% difference with the official young candidates in the Province of Buenos Aires, her precarious victory only thanks to the poverty factory that she herself fostered at the overpopulated Greater Buenos Aires, where many voters, for one reason or another, are not yet receiving tangibly the efforts of the new government. Most probably the former president will end up losing in 10/22 also in that same territory, since many voters of candidates who were left outside the October electoral dispute (a sort of ballotage) would prefer to be killed than voting for her. If her political faction is measured at country level, her growing insignificance will imply almost certainly that the last ones to give her a hand will be the peronists themselves.
It is now a possibility that Cristina Kirchner faces imprisonment for charges of corruption and even treason to the homeland, the latter because of her alleged involvement in protecting Iranian officials considered guilty of the terrible terrorist attacks against the Jewish community of 1994 and which caused the murder of federal attorney general, Alberto Nissman, in early 2015, for all of which she is now being investigated by the judiciary.
Without any doubts, there is still much to do for Mauricio Macri’s government, since the bombs left by Kirchner’s government were more difficult to deactivate than as thought. Thus, like a deadly hurricane, the populist experience left the country in December 2015 with more than 30% of structural poverty, a tax deficit close to 8% of GDP (with high fiscal pressure and expenditure aimed mostly to political squandering and unnecessary subsidies later hard to remove), absurd exchange controls, prohibitions of access to foreign currency, and a fierce distortion of relative prices. The same can be said of the almost total loss of country financial reserves, deteriorated infrastructure, almost no energy resources and reserves, annual inflation above 40%, and an absurd sovereign default, and therefore the country isolated from the world and without access to credits other than those granted by the Venezuelan chavist regime.
However, the question always difficult to answer is how can Argentina finally enter a well-being and long-lasting growth cycle, characteristic of developed countries, without false eagerness for success, after decades of suffering the most varied forms of populism, with its cyclical and serious lacks of respect to the rule of law?
And although the final answer is to be found in the long term, it is worth noting that the entire heavy legacy described above is being addressed and attacked by the government, with still modest but tangible results, greener pastures clearly more and more visible as from the second quarter of 2017, one more reason for the recent election’s outcome.
Before reaching six months in government, early in 2016, the country had already overcome the default status, abandoned exchange controls and regularized capital inflows and outflows, reduced distortive taxes on exports, normalized the agro-industrial sector and foreign exchange, and declared the war on mafias, and incarcerating conspicuous corrupts associated to the former government. Also, by returning successfully to the international financial markets, it recently placed a one-hundred years bond, with all that it means as regards refreshed trust to the country.
The current climate of calmness and social peace, freedom of speech and growing institutionality are not to be left unmentioned, after society got fed up with the populist shortcut, one of whose pillars was to divide the people and foster hatred all over the place (a pillar of the 1949 peronist bible).
Thus, in part, an answer to the question posed is that Argentines voted, not only with short-term results in mind –the economy is still on its way to recover- but also for the need to change the country’s direction for the long term, while perceiving that the government, in addition to honesty, showed good management skills, and far from short-minded is proposing a total cultural change. This might be another reason for President Macri being probably seen as the new Latin American political leader, something totally unexpected not too long ago as regards this wealthy bourgeois but who, first, as it’s president, put Boca Juniors club on the top of world-class football teams, and then governed Buenos Aires city in such a way that it is nowadays probably flourishing like never before in decades, all of these reasons why more than 60% of the city voters supported Cambiemos in the recent polls.
Moreover, the until then largely criticized gradualist approach of the government –mainly due to social sensitivity reasons-, proved also to be the best way of exiting from the chaos left, confirming that there is no other way when it comes at the same time to reduce high inflation, poverty, restructuring public accounts and at the same time reactivate the economy, a terrible blend of macroeconomic variable and realities. Although the scars of the past are still visible, it is also true that there are concrete signs of a sustained growth in employment and industry, which is hand-in-hand with a frontal attack to poverty with multiple measures for its reduction.
It is also to be expected that after October, the government will have more parliamentary support to promote significant legislative reforms, such as the case of the loosening of labor laws, thus reducing costs, as well as a wide and long-expected tax reform.
Also reliable statistics show that after more than 6 years of recession, the economy is to grow approximately 2% this year, and 2017, 2018 and 2019 may mark a GDP growth of approximately 3%, 3.5% and 4%, respectively, and steadily at such rates as from 2019, with marked social inclusion of the most vulnerable sectors. Inflation, in process of slow reduction, is expected to reach one digit by then.
This panorama will probably serve many investors (until now in a form of wait and see), particularly in the public-private cooperation sector (fostered in part by a new and modern PPP regime passed at Congress recently), to take the step they did not dare in 2016 and thus contribute, among other destinations, to the most ambitious road infrastructure, transport, residential, energetic, social, health and educational program that Argentina has ever experienced. If this were achievable, President Macri may have now more chances of being reelected in 2019 for four more years.
Without any doubt the challenges are a lot, but good news and better expectations also are plenty. We may hopefully not only talk of normalization but also of transformation.
Buenos Aires, August 2017