Macri presses on with austerity and finds “scapegoats” for failing to deliver on promises

Macri presses on with austerity and finds “scapegoats” for failing to deliver on promises

The first year of Macrismo has, undeniably, meant sacrifices. Unemployment increased to 8.5 per cent following a wave of dismissals in the public sector. Job insecurity also rose: 43 per cent of people fear for their jobs. And inequality too: the richest earn an average of 26.5 times more than the poorest. In this image taken on 14 July 2016, protesters rally against the public service hike ("tarifazo").

(AP/Victor R. Caivano)

President Mauricio Macri of Argentina has ended his first year in office with opposite results to those he announced after being sworn in, and a cabinet reshuffle designed to reinforce fiscal adjustment.

Opinions on how well the government is managing the economy are divided: although Macri has given himself a rating of 8 out of 10 for his first year in office, the number of Argentinians assessing the administration negatively are almost double those who view it positively. In addition, according to a recent opinion poll for the Clarín, 51.6 per cent of Argentinians accuse the government of breaking its campaign promises.

With recession and inflation at their highest levels since 2003, the blame had to be placed somewhere: within the government, it was cast on those least committed to austerity. Alfonso Prat-Gay was thrown out of the Treasury and Finance Ministry, along with Isela Costantini as the head of Aerolíneas Argentinas. Both were criticised for “not being team players” and for their “gradualist approach” to reform, and were implicitly identified as those responsible for the lack of results.

A share of the blame was also apportioned to the heads of the previous administration and the “difficult inheritance” they left behind – which Macri pledged to inventorise on taking office, but did not do – and the migrant population.


Economic review of Macri’s first year

With the task of managing the economy split between several ministers, the problem does not seem linked to the outgoing minister: the strategy for his portfolio remains virtually unaltered. Prat-Gay is a prestigious economist, a prestige he earned mainly from his performance at the helm of the Central Bank, when he headed the rescue of the exchange, monetary and financial system following the crisis of 2001. His moderate heterodoxy allowed him to sail the waters of Néstor Kirchner’s government.

Under the Macri administration, Prat-Gay has succeeded in resolving the debt default saga by reaching a deal with the so-called vulture funds. He has also rapidly disarmed the feared exchange controls whilst avoiding runs on the peso, and implemented a tax amnesty laundering record amounts of capital (a move that was controversial but went ahead to try to reel in part of the huge funds not declared to the taxman, by granting sweeping pardons and advantages to try bring them into the tax system after their laundering).

Speaking from the opposition, former economic minister Axel Kicillof accused the government of failing to meet its forecasts and to fulfil its promises: “They announced inflation of 20 to 25 per cent and we ended up with 45 per cent; growth of one per cent, but it has fallen by two to three per cent. And zero dismissals, but there have been over 200,000.” Kicillof blamed the adjustment policies, although not the inflation and the devaluation that was ruled out at the end of his administration.

The first year of Macrismo has, undeniably, meant sacrifices. Unemployment increased to 8.5 per cent following a wave of dismissals in the public sector. [Job insecurity also rose: 43 per cent of people fear for their jobs. And inequality too: the richest earn an average of 26.5 times more than the poorest.

In a country where 32 per cent of the population is poor, the government has discarded its promise of achieving “zero poverty”, and even vetoed the Anti-Dismissal Law approved by Congress.

In 2017, it plans to push for greater labour market flexibility and to freeze public employment. According to the NGO Chequeado, only 10 per cent of Macri’s campaign promises have been fulfilled, and 25 per cent have been blatantly broken.


The policies implemented: the route taken

The most controversial measures include the increases in public service, energy and transport prices. These increases, of up to 400 per cent, have placed Energy Minister Juan Jose Aranguren on the list of the most unpopular government officials (as well as for having used his position, according to various publications, to benefit Shell Argentina, of which he used to be the CEO).

The anti-inflationary policy of the Production Minister, Francisco Cabrera, also failed: the devaluation led to price rises of between 60 and 100 per cent.

The elimination or reduction of taxes on mining and agribusiness exports had less exposure. This tax was one of the main sources of treasury earnings and contributed to bringing down the domestic price of the products concerned.

Mining companies and agro-export consortia have also benefitted from a devaluation of around 70 per cent to date.

From the heterodox side – local version of “progressive economic thought” – an ADG report blamed orthodoxy (neoliberalism), arguing that, after “the public service price hike and the devaluation, the government cut spending and public sector jobs…and...forged ahead with anti-inflationary monetary policy…in the context of a recession, to tackle inflation that, for the most part, has no fiscal or monetary basis. The result: stagflation, an anomaly for orthodoxy, insistent on using inappropriate methods for this scenario”.

But has fiscal tightening done anything to bring growth closer and make it more sustainable? It appears to have had the opposite effect: the current account deficit increased by 35 per cent and the fiscal deficit reached five per cent of GDP. Debt has also risen to levels not seen since the crisis.


Macri’s solutions

After the US elections, “the foreign question” gained impetus amid the malaise over unemployment and insecurity. References to the “burden” immigrants place on the education and health systems, their “hogging” of Argentinians’ jobs and their links to crime have proliferated.

Although immigrants represent just five per cent of the prison population, 4.6 per cent of the total population, and around 1,300 are deported every year for having a criminal record, the government has brought in migration law reforms introducing very summary proceedings to deport offenders. The Minister of Security spoke of “Peruvians and Paraguayans” who end up killing each other to control the drug market.”

But one thing the government is not altering is its economic course.

Following the public service price hike of 2016, rates are to be increased again, by 68 per cent, before March. And yet again in November. For some heterodox observers, a worsening of the macroeconomic situation would work in favour of a neoliberal agenda, with more cutbacks, privatisations and deregulation justified by the vulnerable financial and fiscal situation.

On the orthodox side, Marina Dal Poggetto forecasts “significant leaps in public works during the first half of the year”. During the second half, there will be parliamentary elections that the government needs to get through without damaging its already minority position in both houses. Others, like Jose Luis Espert, think that 2017 will be good, “based on how bad 2016 was. Argentina will only recover what it has lost.”

Before the new public service price hike, the IMF trimmed its growth forecast for 2017 by a fifth. The impact of this renewed pressure on consumption and production remains to be seen. Macri is optimistic: “Argentina continues to be the country with the greatest growth potential.”

On the other side of the “fissure” – the term popularly used for the deep division and intolerance that separated the progressives and conservatives during the Kirchnerismo years – it is feared that growth will continue to be “potential” rather than “real”, if the government persists with it adjustment policies.

The chances of the divide being closed seem ever more faint.


This article has been translated from Spanish.