Free-marketeer Mauricio Macri has struggled to turn Argentina's sclerotic economy around, leaving the door open for Peronist cheerleader Cristina Fernandez de Kirchner. Yigal Chazan reports on the eve of national elections in October.
Though much discredited in recent years, Peronism appears set for a revival. The populist movement's most prominent proponent Cristina Fernandez de Kirchner is gearing up for elections later this year, which could see her defeat free-market advocate President Mauricio Macri whose attempt to point the country in a more business-friendly economic direction have floundered - with his critics on the right saying he hasn't been radical enough.
Polls have been showing Cristina, a former two-term president, either neck-and-neck with, or slightly ahead of, Macri who came to power on a wave of optimism promising to turn South America's second-largest economy around after years of protectionist, free-spending Peronist policies. They left Argentina, one of richest countries in the world a century ago, mired in debt and corruption, putting off foreign investors.
A pragmatic president?
Hugely controversial, Cristina - who is facing corruption charges which she has denied and dismissed as politically-motivated - is to fight the October election on a joint ticket with Alberto Fernandez, no relation, as vice-presidential and presidential candidates respectively. Fernandez, the pragmatic ex-chief of staff of Cristina's predecessor, her late husband Nestor, is regarded as a capable political negotiator. Indeed, the bid is seen as a clever ploy to not only unite an opposition movement that has been bitterly divided over Cristina's leadership but also to possibly secure immunity from prosecution.
The move may also limit Macri's ability to try to co-opt Peronist critics of Cristina as he back-peddles on some market-orientated policies to bolster his standing in advance of the elections. It will be a tall order for the ambitious former mayor of Buenos Aires. He talked a good economic game when he swept into office in a stunning victory over Cristina in 2015, but the centre-right president's reforms ultimately failed to deliver. That has left many Argentinians yearning for the generous welfare of Peronism, a decades-old political creed, with social justice one of its main pillars.
It was not ever thus. There was little sign of the financial calamities that have recently befallen Macri - most humiliatingly having to go cap in hand to the IMF - in his first couple of years in office. Then popular measures, such as the lifting of currency controls, the reduction of export taxes as well as the resolution of a long-standing dispute with bondholders that restricted Argentina's access to international credit markets, raised Macri's stock even as he sought to reduce the budget deficit by gradually cutting utility subsidies and public sector jobs.
Some Argentinians bridled at the austerity but were prepared to give the businessman-turned-politician the benefit of the doubt, pinning their hopes on job-creating investment that Macri said would come. While early bond sales were oversubscribed, there was little in the way of significant foreign direct investment. Many investors remained in ‘wait-and-see' mode, assessing whether the president's so-called ‘gradualism' - an attempt to minimise the pain of reform by preserving some social safety nets - would create the business-friendly environment they sought.
They were to be disappointed. Cuts to utility subsidies squeezed consumer spending and prompted businesses to hike up prices. The inflationary pressure weighed on the peso, which was further weakened by rising interest rates in the US drawing funds out of emerging markets. Argentina sought to stabilise the currency by selling off its dollars and hiking up the cost of borrowing but struggled to arrest the slide.
The cost of living soared, inflation rising to over 50 per cent, as the peso tumbled, losing half its value against the dollar last year. With the economy in turmoil - contracting by 2.5% in 2018 - Macri was forced to beat a retreat to the IMF, the bane of the Argentinian nation, to secure a $56bn bailout, the biggest in the institution's history. In return, the IMF demanded challenging terms: a balanced budget this year, requiring tax rises and deeper spending cuts, reviving bitter memories of previous bail-out-linked austerity.
After his initial promise, Macri has little to show for his time in office. Some economists might argue that he has set the right course, but ‘big state' Argentina has not undergone much pruning and the middle classes, key to bringing him to power, and the poor, Cristina's natural supporters, are rapidly losing patience with him. In a bid to reverse his fortunes, Macri has started to back-pedal on several of his reforms, reintroducing some export taxes and setting price controls on staple goods. He has even chosen a moderate Peronist, Miguel Angel Pichetto, as a running mate for the upcoming polls, in a bid to broaden his appeal.
Some on the right of the president's Cambiemos (Let's Change) movement believe that gradualism was flawed, with the economy requiring radical surgery. The softly-softly approach may have averted potentially paralysing social unrest and industrial disruption, but in the end these critics argue the slow pace and partial nature of Macri's reforms were a recipe for failure. Argentinians endured financial pain, with rising levels of poverty, and few appreciable compensating benefits.
While a Macri victory should not be ruled out - he triumphed in mid-term Congressional elections against the odds - his prospects are not looking good as Cristina strives to persuade Argentinians to change tack. Under current circumstances, that will not be hard. Indeed, Peronists performed strongly in recent provincial elections, despite memories of the movement's poor economic record still relatively fresh in people's minds. Where that will leave Argentina is hard to say.
Would a Peronist administration revert to type and spit out the tough medicine prescribed by the IMF? If Alberto Fernandez has any influence, the country might be a more willing patient. As for Macri, he has a limited window to persuade Argentinians that their burdens will ease or that, his supporters argue, the foundations of the economy are healthier. Getting more Peronist centrists to join his ranks would certainly give him additional credibility. Set to become the first non-Peronist leader to complete a term in office for decades, he will not want that to be his political epitaph.
Yigal Chazan is head of content at Alaco, a London-based business intelligence consultancy. Subscribe to International Investment's free, twice-daily, newsletter