New president breathes life into Argentine economy

We often find ourselves in countries that are either at an early stage of development, battling with multiple economic challenges, or, in the case of Argentina, instilled with potential but trying to emerge from political and economic doldrums.

Portfolio Adviser


The capital Buenos Aires, which literally means ‘good air’, apparently got its name from early Spanish settlers who established themselves on a hilltop above the old city to escape the swampy, foul-smelling lowlands on the coast.

According to others, the name derives from the ‘fair winds’ that would carry sailors through the Río de la Plata into the port town of Buenos Aires. It is the latter I find most appropriate following my trip there.

Argentina is a country that has been facing significant headwinds for more than a decade now, following its social and economic collapse at the turn of the century. With a new government
in place, reformist policies and aggressive economic rebalancing, the winds may finally be changing for Latin America’s second-largest country.

Fresh start

For Argentina, 2015 was a crucial year of political transition, ending more than 12 years of populist and increasingly authoritarian rule under the Kirchners. The country transitioned into a new era of government with the appointment of wealthy entrepreneur Mauricio Macri as president, and, more importantly, managed to do so without triggering a political or economic crisis in the process.

The change was significant. A small, centre-right and pro-market party won the presidential election against the entrenched and dominant political force in the country. The key reason was the loss of Buenos Aires, which accounts for over 40% of the country by both population and GDP, and it has historically been a Peronist stronghold (including the 12 Kirchner years).

There is still an uneasy coalition ruling the country but the new government has shown a willingness and capacity to implement change. Many of the new breed of young politicians come from the private sector and are motivated by the need for change. They are also less hampered by ideology and party factionalism. A well-organised and rational opposition are keeping the government on its toes, but without hindering the desperately needed reforms.

The results are clear: since the new government came to power more than 52 laws have been passed following discussion and amendment with the opposition. Based on this we believe the coalition is working.

Green shoots

Macri campaigned on political rather than economic reform, which was a critical first step.

Having successfully established a new government, the focus has shifted to the dire state of the economy. Argentina remains in recession, with the economy shrinking by 3% in Q2 2016. Inflation is also incredibly high at over 40%, along with interest rates, as the central bank benchmark sits at 26%.

However, the poor macro numbers only tell part of the story and certainly do not encapsulate how bad an experience it has been for the average Argentine.

Around one-third of the population lives below the poverty line, but for children this is almost 50%. Education has also suffered from years of under-investment and there is little social mobility.

There are, however, green shoots of opportunity emerging. Confidence is improving and government approval ratings remain high at 60%, which should allow it to implement the necessary changes.

GDP proxies are rebounding and could return to growth next year. Inflation is trending down and Argentina will sustain an expansionary budget, which should be comfortably financed due to low public debt and the newfound access to international capital markets. A 10-year education programme is also in the pipeline.


Latest Stories