Macri And Argentina: It Started With Such Hope

Introduction

Last February, I wrote a piece on the reforms the newly elected President of Argentina was in the process of introducing. Things looked quite promising. But as we all know, the devil is in the details. So in this piece, I look at the progress and lack of progress since February. As I did earlier, I have asked a friend who lives in Buenos Aires to comment on these matters. Hendrik Jordaan is the founder of Laurik International, a company that he started to promote business relations and interactions between Argentina and South Africa. His thoughts on these issues (HJ) follow along with my questions/observations (EM).

EM: Currency controls – is the peso still floating freely? And if so, is their evidence that exporters are benefiting?

HJ: The Peso is in effect floating freely but the Dollar and the Brazilian Real are losing value, so the Peso is still not weak enough to really make Argentine value-added exports competitive. It is also now harvest time and many of the exporters are bringing in foreign reserves. And that action strengthens the Peso.

EM: Are the Finance Minister and Central Bank heads still in their jobs? Have there been any other notable appointments?

HJ: All members of the original Macri cabinet are still in place. There are three leadership issues worth noting:

The Minister of Energy, the previous CEO of Shell, still holds a substantial amount of Shell stock. Opposition on the left continues to point this out and that it poses a conflict of interest threat.

Macri sacked the head of customs because there is a slight suspicion he may be involved in a case of bribery. Some think that Macri might be trying to clear the customs head’s name so he can continue fighting against the system installed by the previous government where bribes had to be paid to be allowed to trade.

The Supreme Court now has its full complement of judges (5) and they candidates have been generally accepted throughout the political spectrum.

EM: Macri promised to lower personal income taxes and end export taxes: what has happened here?

HJ: The lowered income tax is still working its way through Congress. However, pensions for the elderly have been increased as has the way in which the increases are calculated. Needless to say, this action is quite popular.

The taxes on beef, wheat and corn were previously 15%, 23% and 20%, respectively. These taxes, along with all other agricultural exports taxes except soybeans have been cancelled. The export tariff on soybeans has been lowered from 35% to 30 percent. These changes have been very positive for the agricultural sector. And although the 2015/16 weather was not perfect, farmers are very optimistic and highly motivated to producing as much as possible going forward.

Macri is also trying to get Congress to approve new rules to calculate the income tax as rates have been constant for almost 15 years. And with the high inflation, citizens considered too poor to pay taxes must now pay them.

EM: Eliminating energy subsidies – I know there are problems here. Of course, nobody likes higher energy bills. But it also sounds as if the Macri government made numerous mistakes in how it introduced the higher charges.

HJ: The government’s current main concern is to raise energy prices. They have gone about doing it in such a haphazard non-political way that they have just been sent back by the Supreme Court to do things according to the book. Macri is learning that governing is not just “common-sense” decision making and administration. And even though it might be tedious and time consuming, procedure should be followed. Most people in Argentina agree that energy prices should increase: even the judges that vetoed Macri’s price hikes agreed they are needed. But the Supreme Court insisted the process should involve public hearings to ensure that everybody is heard.