President Macri's Christmas wish list


Jan Dehn, head of Research at Ashmore, suggests that the Christmas wish list of Argentina’s president-elect has just two items – growth and power. Here is why the political business cycle in Brazil may be turning. In the US, the Fed prepares to hike in December as base effect loom large.

Christmas has come early for Argentinians
Mauricio Macri was elected president with a clear margin over Daniel Scioli and he will take office on 10 December. The election of a modern, market-friendly leader marks a dramatic and positive change from a Kirchner era characterised, in our view, by populism, lost opportunities, inefficiency, unnecessarily divisive politics, alleged corruption, ever-growing macroeconomic imbalances and, occasionally, violence.

Still, Macri will be sending a Christmas wish list of his own. Topping the list will be two ingredients he sorely needs in quick order to be able to effectively change Argentina, namely power and growth. Macri’s presidency starts with neither a majority in parliament nor much room to stimulate the already over-stimulated economy. The risk is clearly that Macri becomes to Argentina what former-President Fox was to Mexico, an ineffective breath of fresh air.

Brazil experiencing a political turning point
Turning points in political business cycles are not often easy to spot, but it helps to know what to look out for. As is well known, President Dilma Rousseff’s approval rating has been declining dramatically over the past year and a half. It has now fallen so far that, barring actual impeachment, it can hardly drop any further. Ironically, herein lies a silver lining for Dilma, because further humiliation of the president by the opposition could begin to backfire.

Consider for example what would happen if the opposition took further measures to erode the public finances in Brazil in order to attack Dilma. The consequences for the Brazilian economy could obviously be severe, but the blame would increasingly begin to fall on politicians in general rather than just Dilma and the PT party.

This would happen not just because Dilma’s approval rating can hardly fall much further, but also because voters would perceive politicians in general as failing.