November 09, 2018

Macri reforms


WorldAware’s Americas team is watching events in Argentina, which is seeing a sharp increase in the frequency and intensity of disruptive protests and labor strikes. The government’s handling of accelerating inflation and the depreciation of the peso is likely to prompt continued political instability in the coming months.

President Mauricio Macri assumed the presidency in late 2015 after nearly 13 combined years of rule by Cristina Fernández de Kirchner and her late husband, President Néstor Kirchner. Both Kirchners pursued populist, left-wing policies involving large budget deficits, as well as currency controls. Marci, however, represented a stark change – he is a conservative businessman who, even before being elected president, had a long-running acrimonious relationship with the unions and had spoken of the need for market-based economic reform.

President Macri

Once in office, however, Macri struck a more conciliatory and politically expedient tone by enacting only gradual economic reforms. Despite Argentina’s significant fiscal deficit, for example, Macri had initially instituted mostly limited spending cuts, and reduced or abolished many taxes as a means of shoring up support for his economic program. That gradualism, however, has failed to prevent runaway inflation or address the exchange rate crisis, and Macri has simply run out of time to address the issues in a way that will not prompt major civil unrest.

In September, acknowledging that immediate action was necessary, Macri announced that he would drastically reduce the deficit by cutting spending – including by abolishing up to half of the government’s ministries – while re-imposing what he called “really bad” export taxes. In response to these politically toxic austerity measures, Argentina’s major labor unions have held multiple disruptive strikes, including a nationwide general strike.

Macri also asked the IMF to accelerate disbursements of a loan as an emergency measure. The IMF is extremely unpopular with the political opposition - and many ordinary Argentines - due to its perceived role in the 2001 economic crisis and subsequent 2015 technical default. Consequentially, Macri’s increased reliance on the IMF is likely to spur additional protests.




The sudden widening of economic reform is therefore likely to be very unpopular with many segments of the population, especially public sector employees, who have long distrusted Macri and have been quick to declare disruptive industrial and protest action. The re-imposition of export taxes is likely to significantly and negatively affect Argentina’s large, export-oriented agricultural industry, thereby reducing Macri’s support among the farming sector.

In conclusion, because the fundamental issues that spurred Macri to action – the loss of over half of the peso’s value against the dollar since the beginning of the year and skyrocketing inflation – are especially damaging to average citizens and are unlikely to be resolved immediately, Macri’s popularity could continue to fall. Demonstrations against his administration are therefore likely to be numerous and well-attended.

Further adding to the climate of instability, the Argentinian Central Bank, which has regained much of the independence that it lost during previous administrations, has done Macri no favors by raising interest rates to a staggering 60 percent, which can be expected to increase unemployment, spark a sell-off in equities markets, and push the economy toward recession. All these effects will feed into public discontent with the government, leading to an increased threat of immediate civil unrest.

Argentina accordingly faces a negative short-to-medium-term outlook. Macri’s economic policies have failed to prevent an economic crisis. Given his commitment to orthodox economic policies, he has turned to more radical economic reforms, which are likely to be deeply unpopular, especially with the country’s active labor unions, civil society groups, and supporters of the Peronist opposition. Disruptive and even violent protests and strikes are therefore likely to intensify.


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