Macris First Year in Office: Welcome to 21st Century

Neoliberalism
By Alan Cibils1
As the United States and the world grapple with the potential implications of a Trump
presidency, Argentina is evaluating the results of Mauricio Macris first year in office. Macris
electoral victory on November 22, 2015, marked the end of 12 years of populist, expansionary
economic policies and the return to neoliberalism. While government officials and supporters
deny this, a close look at the Macri administrations discourse on economic issues and policies
implemented force the conclusion that this is neoliberalismagain.

From campaign rhetoric to economic policy

Macri campaigned as an outsider to politics (despite two consecutive 4-year terms as
mayor of the City of Buenos Aires), whose main goal was to solve ordinary peoples problems.
His message was that he would keep those policies of kirchnerismo (the previous two
presidents were Nestor Kirchner and Cristina Fernandez de Kirchner) that had worked and
improve or change those that hadnt.
However, when Macri took office it became clear that his program was a major
rollback of the populist legacy and a return to neoliberalism. Macri stacked key ministries
with corporate CEOs, leading some to state that Argentina was now a CEO-cracy, rather than
a democracy. Bloomberg heralded Macris arrival to office with an eloquent Wall Street Is in
Charge in Argentina (again). Argentine Treasury Minister Alfonso Prat Gay stated the Macri
governments intentions clearly at a G7 minister meeting: The world is threatened by
protectionism and populism, and Macri was elected to emancipate Argentina from these
evils. In other words, Macri would do away with the populist legacy and open the economy
to the world.
So, what have been Macris main economic policies in his first year in office?

First, exchange controls, a Kirchner-era policy strongly opposed by the middle class,
were lifted. Doing so involved a 40% currency devaluation, despite campaign promises to the
contrary.

1Argentine economist, Professor of Political Economy at the Universidad Nacional de General

Sarmiento in Buenos Aires, Argentina.

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 Second, export taxes were eliminated on most agriculture and mining products
(Argentinas main exports). These taxes served not only as a source of fiscal revenue, but also
to delink domestic market prices from world market prices.
Third, monetary policy changed radically to an inflation targeting regime. The
Central Banks nominal interest rate was initially set to 38% and gradually lowered to its
current 26.25%. Inflation control has become the dominant goal of macroeconomic policy.
Fourth, subsidies to utilities and public transport were slashed, dramatically increasing
prices. These increases impacted greatly on households, small and medium businesses,
commerce, and, of course, inflation.
What have been the results of Macris chosen policy set?
First, the combination of devaluation, export tax elimination, and higher utility and
interest rates (a cost to businesses) have resulted in a sharp increase in inflation, almost
doubling the already high rates inherited from the Kirchner years. It is expected that the
inflation rate for 2016 will be about 40%.
High inflation has resulted in a considerable reduction of real wages and consumption,
resulting in a recession. Economic activity indicators turned negative in March, and have yet
to show a sign of recovery
The recession resulted in a substantial increase in unemployment, averaging 9.3%
nationally and more than 10% in urban areas. As a result, poverty and indigence (severe
poverty) have risen substantially. The official poverty rate now stands at 32.3% of the
population, and 6.3% are indigent. According to a report produced by a research institute of
the Argentine Catholic University, in the first five months of the Macri government, 1.4
million people newly fell below the poverty line.
Export tax reduction and high nominal interest rates have resulted in windfall profits
for exporters and the financial sector, resulting in a substantial upward income redistribution.
It seems that trickle-down economics is back in town.

Neoliberalism recharged
The radical policy change has come with a significant change in official discourse on
economic issues:
Wages are now a cost to be reduced in order to be more competitive
internationally. The labor market needs to be deregulated, as unions and labor
legislation make labor uncompetitive. In other words, wages are no longer a source
of demand, development, and welfare improvements.

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 Monetarism and outdated views of money and banks are back: money is a
commodity, saving (not credit) finances investment, fiscal deficits are bad and,
should they exist, must be financed with debt.
Strong and unilateral alignment with the United States, reminiscent of the carnal
relations during the presidency of Carlos Menem. (1989-1999) Regional
integration initiatives like the UNSASUR, Banco del Sur, etc., have been all but
abandoned.
The official approach to public debt has also changed dramatically from the
Kirchners debt reduction strategy. The vulture funds were paid off according to
a New York courts outrageous ruling. The stock of both dollar- and peso-
denominated debt is rapidly growing again as a percent of GDP, causing worries
about its future sustainability.
Finally, the IMF was invited back. An Article IV consultation, the first since
Argentina cancelled its debt with the institution in 2006, was recently concluded.
The Funds conclusions hold no surprises, with recommendations for more
austerity, less subsidies, and a fiscal surplus. The IMFs satisfaction with the Macri
government is clear in recent documents, praising Macris social sensitivity and
blaming past governments for all current problems.

Whither Argentina?
Like the IMF, the Macri administration blames the significant current problems on the
heavy inheritance received from 12 years of kirchnerismo. It is true that Macri received an
economy with imbalances which needed to be addressed: outdated utility subsidies, foreign
exchange constraint, moderate inflation, etc. However, the explicitly neoliberal policy set was
an choice of the Macri administration: it was not inevitable or the only choice, and certainly
not the best. Macri has clearly chosen to benefit the corporate and financial sectors and
foreign capital over Argentine workers. With a technocratic discourse, Macri is leading the
country down a road that has already proven to be disastrous. One can only hope that this
time the ending wont be as catastrophic as it was in 2001.