Is Argentina About To Be A Buy?

In the first round of Argentina’s election on October 25, free(ish)-market candidate Mauricio Macri did surprisingly well.

He recorded 34.3% of the vote compared with 36.9% for Daniel Scioli, a leftist supporter of outgoing President Cristina Fernandez.

With other candidates tending to support the opposition, Macri looks well placed to prevail in the runoff on November 22.

But what’s not clear is whether Argentina, after 12 years of rule by Fernandez and her late husband Nestor Kirchner, can be rescued by a Macri government. And whether, for the first time in at least 20 years, Argentina could be a buy for Western investors.

Argentina’s Turbulent History

In 1929, Argentina had one of the world’s wealthiest economies.

However, the 1930s were hard, as world trade collapsed by 65% and protectionism soared, ruining the market for Argentina’s primary goods exports. This led to the legend that capitalism impoverished the people, with the 1930s thereafter being referred to as the “Infamous Decade.”

The early post-war years under nationalist-socialist President Juan Peron were prosperous, as Peron’s government spent the world’s second-largest foreign exchange reserves on social programs and handouts to favored groups.

This cemented Argentine voters’ view that populist economics worked.

The subsequent series of bankruptcies and the country’s gradual decline into poverty were blamed on the feeble coalition governments and inept military regimes that succeeded Peron.

In the 1990s, this seemed to change. A nominally Peronist but actually centrist government under Carlos Menem locked the peso against the dollar, eliminating the country’s chronic inflation.

Menem also privatized the oil and power sectors, as well as the pension system. Unfortunately, that government also ran budget deficits and financed the spending with international borrowing.

Living standards didn’t raise much, as commodity prices remained low through the decade, and at the end of 2001, yet another national bankruptcy occurred. The peso’s value collapsed.