2. ARGENTINA: Opposition Bill Marks Challenge to Macri (The Wall Street Journal)














By Benedict Mander in Buenos Aires

May 19, 2016

Former president Fernández faces allegations of embezzlement, bribery and money laundering

Across Latin America, powerful political figures are falling foul of a renewed zeal for attacking corruption. Politicians are under fire from Mexico to Chile, with the downfall of Dilma Rousseff in Brazil this month over accusations she fiddled national budget figures only the latest example.

Now Cristina Fernández de Kirchner, who ruled Argentina for eight years until last December, and several former associates, face allegations that include embezzlement, bribery and money laundering.

The first formal charges against Ms Fernández last week over the sale of future dollar contracts by the Central Bank below the market price are just the beginning of legal complications for officials of the former administration.

“She will end up in prison,” said Elisa Carrió, a key figure in the coalition of the new government of President Mauricio Macri, and an outspoken crusader against corruption.

“She is involved in almost all the lawsuits” connected to the previous government, Ms Carrió added, arguing that it was ultimately Ms Fernández who awarded all the public works contracts where corruption is suspected.

Indeed, a legal noose is tightening around Ms Fernández, who is implicated in several other cases as well as the Central Bank’s controversial derivatives trading, which incurred losses for the state of at least $5bn in a bid to prop up the currency in the final months of her government.

The fiery populist says the allegations against her are designed to smear her legacy and distract attention from soaring inflation, lay-offs and rising poverty, as market-oriented reforms including a sharp devaluation and subsidy cuts take their toll.

Meanwhile, Ms Fernández and her supporters point to Mr Macri’s involvement in the so-called Panama Papers scandal, with Argentina’s new business-friendly leader under investigation for alleged ties to offshore companies. The prosecutor in the case said this week that he will open up a new line of investigation after media reports that the companies are still active, despite Mr Macri’s claims that they were closed down years ago.

Observers point to parallels with the situation in Brazil, where Ms Rousseff has described her impeachment as a “coup”, while several cabinet members in the new administration of Michel Temer face corruption accusations even as they seek to cure the country’s economic woes.

“These investigations will extend to other officials close to the former president but fall short of a serious and extensive investigation such as the lava jato case in Brazil since judges are politically motivated and not fully independent,” said Daniel Kerner at Eurasia Group, a political risk consultancy in New York, referring to the various different corruption investigations under way.

Other influential former officials that are being investigated over corruption accusations include the Kirchners’ longtime planning minister Julio de Vido, cabinet minister Aníbal Fernández and the vice-president Amado Boudou.

Among the most damaging of the accusations against Ms Fernández relate to alleged money laundering through hotels owned by the Kirchner family. She is also accused of bribery, together with her son Máximo Kirchner, in connection with the case.

“The Kirchners stole in two ways: either keeping a significant percentage of bribes or setting up their own companies that [nominally] belonged to Lázaro Báez,” claims Ms Carrió.

Mr Báez, a close associate of the Kirchner family and a leading government contractor, is in prison awaiting trial after his arrest last month when he landed in Buenos Aires in his private jet to face questioning over accusations of money laundering and overcharging billions of dollars in public works contracts by an average of 20 per cent.

Leonardo Fariña, who claims to have helped Mr Báez launder millions of dollars and whose testimony led to his release from prison in April, told local journalists last month that Ms Fernández was well aware of the scheme that he says was masterminded by her husband and predecessor as president, Néstor Kirchner, whose mausoleum was built by Mr Báez.

Mr Fariña’s testimony led to a series of raids being carried out across Argentina to recover stolen assets, which also revealed that Mr Báez could own as many as 150 undeclared properties.

Ms Fernández has reacted furiously to the allegations leveled against her.

Last month she told a crowd of supporters outside the courts in Buenos Aires after giving evidence: “Every time a popular political movement leaves office or is thrown out of power, the authorities that succeed it systematically discredit its leaders, accusing them of grave crimes that are always linked to corruption, abuse of power and ill-obtained assets.”

2. ARGENTINA: Opposition Bill Marks Challenge to Macri (The Wall Street Journal)

By Taos Turner

20 May 2016

The opposition-dominated Congress approved legislation that would double the cost of laying off private and public employees, handing President Mauricio Macri his first legislative setback since taking office in December.

Mr. Macri, who said the law would spook investors and destroy jobs, is expected to veto it. But the bill’s passage raises questions about whether he will be able to persuade opposition lawmakers in the Peronist political movement to back his initiatives.

In his first months in office, Mr. Macri quickly reversed the nationalistic and interventionist policies of his predecessor, Cristina Kirchner. He was able to do much of that on his own, without the need for Congress.

But since April, Mr. Macri has pushed through unpopular price increases around the capital, making it harder for Peronists to support Mr. Macri. Members of Mrs. Kirchner’s opposition party have claimed his business-friendly policies have created a massive wave of layoffs.


By Carolina Millan

May 19, 2016

* IPO marks first equity offering since Globant SA’s sale

* Financial group raises $280 million in stock offering

Argentina’s Grupo Supervielle SA, controller of lender Banco Supervielle SA, rallied in its trading debut after raising $280 million in the country’s first initial public offering in two years. It sold the shares at the low end of its projected range.

The American depositary receipts climbed 3.6 percent to $11.40 at 12:08 p.m. in New York after the bank sold them for $11 each and issued common shares in Argentina for $2.20 on Wednesday. The bank had aimed to raise as much as $311 million by selling the ADRs for as much as $13 and local shares for as much as $2.60, according to a U.S. filing.

Supervielle’s sale marks Argentina’s first foreign equity offering since Globant SA in 2014 and its first local equity offering since Petrolera Pampa SA in 2013. The company is controlled by the Supervielle family, which entered the Argentine banking sector in 1887. Controlling shareholder Julio Patricio Supervielle will own 62 percent of total capital stock and 85 percent of voting rights after the global offering, according to a May 10 filing.

“We saw enormous interest,” Supervielle said in an interview with El Financiero Bloomberg TV’s Karla Palomo. “The Argentina story is fantastic. The recent regulatory changes have awakened the interest from investors, and we’ve also seen growing interest in our company.”

President Mauricio Macri has overturned several of his predecessors policies in an effort to jumpstart the economy and promote foreign investment. Since taking over in December his government has removed most export tariffs, reduced subsidies on utilities and ended a 15-year standoff with bondholders.

Another financial institution, brokerage Puente, has announced it also plans to do an IPO in 2017 in either London or New York.

Bank of America Corp. and Morgan Stanley organized the sale. Raymond James Financial Inc. was co-manager.


By Anthony Esposito

May 19, 2016

The International Finance Corporation, the private-sector lending arm of the World Bank, expects to make investments of around $800 million in Argentina through December, citing particular investor interest in the country’s renewable energy sector.

“The renewable energy agenda in Argentina is probably the most interesting in the world at the moment,” Lizabeth Bronder, director, Latin America and the Caribbean for the IFC, told Reuters in an interview on Thursday.

Argentina invited bids for projects aimed at creating 1,000 megawatts of alternative energy on Wednesday in the country’s first push toward wind and solar power production needed to help narrow its energy deficit.

Business-friendly President Mauricio Macri, who took the reins of Latin America’s third largest economy in December, implemented a law mandating that renewable energy as a share of power consumption rise to 8 percent by 2018 from 1.8 percent currently.

“What we’re hearing from our clients is that they are very encouraged by the recent move into renewables. There is a lot of biomass available, solar and even wind in the country,” said Alzbeta Klein, global head of agribusiness, manufacturing and services at the IFC.

Macri has sought to do away with the interventionist policies of his leftist predecessor, Cristina Fernandez, and has already lifted capital controls, spurred a devaluation of the peso and cut export taxes.

Between 2012 and 2014 the IFC made no new investments in Argentina.

“So far in our fiscal year, which started in July, it’s been $1.6 billion, including the syndications that we’ve done. We expect probably through the end of the year another $800 million or so in new investment,” Bronder said.

“We are expecting to be able to finance some of the renewable energy that is coming,” she added.

Last month, Argentina returned to global debt markets and paid off ‘holdout’ creditors, 14 years after a massive sovereign debt default that triggered an exit of investors and a wave of litigation.

“The immediate attention to paying out the holdouts and listing in the bond markets has really created a channel for private investment in Argentina, that obviously didn’t exist before,” Bronder said .

Macri has promised that a deal with holdouts will help unleash a wave of foreign investment to revive the stagnant economy

“We are seeing investor interest, and we are seeing them coming in carefully and cautiously but they’re not sitting on the sidelines,” said Klein.


By Taos Turner

19 May 2016

BUENOS AIRES — Argentina’s opposition-dominated Congress on Thursday approved legislation that would double the cost of laying off private and public employees over the next six months, handing President Mauricio Macri his first legislative setback since taking office.

Mr. Macri, who said the law would spook investors and destroy jobs, is expected to veto it on Friday. The setback for Mr. Macri comes as pollsters say Argentines are increasingly worried about the prospect of losing their jobs.

Passage of the jobs bill, dubbed the “anti-layoffs law,” raises questions about Mr. Macri’s ability to pass key economic and political initiatives in a Congress dominated by the opposition Peronist political movement. Mr. Macri’s “Let’s Change” coalition is a minority in both houses of Congress.

“What this shows is that in some ways the government has lost control of the political agenda,” said Nicolás Solari, an analyst at pollster Poliarquía. “Now it’s the opposition that is setting the agenda.”

More than 57% of Argentines supported the legislation while 52% said they fear that a family member’s job was at risk, according to a recent survey by pollster Raúl Aragón.

Later Thursday, the president moved to regain the political initiative, announcing increases in the minimum wage that will raise it 33% by January.

Mr. Macri took office in December after narrowly defeating his Peronist opponent in last year’s presidential election. He quickly reversed the nationalistic and interventionist policies of his populist predecessor, Cristina Kirchner, who nationalized companies and heavily regulated the economy. Mr. Macri eliminated taxes on most farm exports, ended currency controls and replaced Argentina’s central bank president.

But Mr. Macri did much of that on his own, without need for Congress, and his ability to govern smoothly during the remainder of his term will depend on support from Peronist leaders — particularly governors who heavily influence how Peronist legislators vote.

Until now, Mr. Macri has successfully wooed those governors, winning their backing in exchange for promises to improve the economy and invest billions in infrastructure projects across the country. In return, the governors backed a plan by Mr. Macri to settle Argentina’s long-standing conflict with a group of bondholders in the U.S.

But after settling that dispute in April, Mr. Macri slashed subsidies on utility rates, leading to higher gas, electricity, water and transportation prices for millions of people in and around this capital city.

Economists said the move was necessary to reduce Argentina’s budget deficit, but the price increases were unpopular and made it harder for Peronist politicians to support Mr. Macri in public.

“Sales have fallen 20% since Macri became president and we’re afraid of getting laid off,” said Liliana Bartes, 33 years old, who works at a bakery. “I have two kids and if I get laid off I’d end up in the street. I think it’s a good idea to pass the anti-layoffs law.”

“There is not a wave of layoffs in Argentina,” Argentina’s Labor Minister Jorge Triaca said at a congressional hearing last week, adding that private sector job creation has been stagnant for the past five years. “This is the situation we’re in. It’s worrisome because it’s structural but it’s not different today than it was five years ago.”

Argentina’s Modernization Ministry, which is charged with updating the state bureaucracy, hasn’t renewed the contracts of almost 11,000 temporary state workers. Those job cuts augmented concerns about broader job losses in both the private and public sectors.

Debate over the layoffs bill has raised concerns among some investors about political stability in a country where several non-Peronist presidents have been forced out of office early because of virulent opposition from Peronist politicians and allied unions.

But analysts say that isn’t the case and that the administration simply needs to adjust to working with an opposition-controlled Congress and a Peronist movement that is trying to regroup after its defeat in the election.

“This is not a governability crisis, but rather an important sign that the government faces a learning process and needs to learn from it,” said Mr. Solari, the pollster.

The push to pass the bill came largely from members of former President Kirchner’s opposition Victory Front Party, which has loudly criticized what they claim is a massive wave of layoffs caused by Mr. Macri’s business-friendly economic policies.

“We are seeing a lot of layoffs. It’s hard to know how many there are because a lot of companies are getting workers to sign confidentiality agreements when they are let go, so government data do not reflect what is really happening in the job market,” said Victory Front Congressman Héctor Recalde.

Mr. Recalde said price increases are hitting workers and the companies that employ them.

Some business chambers are backing that up, saying that a combination of roughly 40% annual inflation, declining purchasing power and an anemic economy is hurting sales and leading companies to consider layoffs. Last month, retail sells fell 6.6% on the year, according to CAME, a confederation of medium-size companies.

“The decline in purchasing power was felt more than ever,” CAME said earlier this month, citing “numerous layoffs” in both the private and public sectors. “Businesses could not do anything about this at a time when people stopped window shopping.”

In an interview earlier this year, Mr. Macri said he was obsessed about creating jobs. Administration officials have acknowledged laying off thousands of federal workers — who Mr. Macri and most of his ministers have said were paid political activists instead of qualified civil servants — but Mr. Macri has said there is no jobs crisis.

Over the past year, Argentina had a net gain of 60,000 jobs, he said recently. Still, he said such a small increase in jobs for a country of more than 40 million people “is nothing,” but promised that the economy will rebound later this year.

“We’re going through a tough transition,” Mr. Macri said after announcing the minimum wage increase, “but people have faith and are expecting a lot of us.”


19 May 2016

Argentina’s corporate executives, unions and government reached a deal to increase the minimum wage 33% to 8,060 pesos (US$570) per month starting in January, Clarín newspaper is reporting.

Until then, there will be partial increases to 6,810 pesos starting in June, and 7,560 in September, from the current 6,060.

Inflation in Buenos Aires reached 6.5% in April, the biggest monthly increase since 2002 – when the country was going through a political and economic crisis – as President Mauricio Macri’s administration lifted transportation and energy subsidies in the capital’s metropolitan region.

Meanwhile, Macri is expected on Friday to announce his veto to the so-called anti-layoff bill approved on Wednesday by Congress. The law would freeze layoffs for 180 days and require companies to pay double compensation for dismissals.

As if inflation and the general perception of increased layoffs weren’t enough problems for the government, the industrial production indicator sank 6.1% year-on-year last month, hit by the crisis in Brazil (the main market for Argentina’s auto sector), a public works freeze, declining household consumption, and higher energy rates. The four-month accumulated indicator fell 2.1%.

“Argentina’s long-overdue policy tightening – needed to address the country’s entrenched inflation problem – is finally underway, but with the fiscal deficit still large and inflation in excess of 40% y/y, most of the hard work for policymakers is still to do,” UK-based research firm Capital Economics said of Macri’s economic reform.

The firm said that while the president has managed to cut subsidies, end FX controls and the legal battle with holdout funds, reduce taxes on agro exports, and lift imports restrictions in his first six months in office, he has yet to lift price controls on products, rein in social spending, give the central bank an employment and inflation mandate, and release more accurate GDP and inflation data.

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19 May 2016

Argentina’s government will continue to guarantee a wellhead price of US$7.50/MMBtu for natural gas extracted from shale or tight formations, as part of a production stimulus program announced Thursday.

The energy and mines ministry published resolution 74/2016 in the official gazette, guaranteeing the price for any unconventional gas, as well as conventional gas from discoveries made after January 2013.

Drafted by the government of President Mauricio Macri, the measure replaces a similar program implemented under his predecessor, Cristina Fernández de Kirchner.

Amid a global supply glut of natural gas, the idea is to incentivize domestic production – particularly from the Vaca Muerta shale and other unconventional formations – so that Argentina can reduce its hefty natural gas import bill and return to energy self-sufficiency.

Producers will be able to lock in the US$7.50/MMBtu price for new projects until December 31, 2018.

Under the program, the national treasury will cover the difference between prices obtained on the domestic market and the US$7.50/MMBtu price.

The difference between the Macri and Kirchner governments, in terms of natural gas pricing, is that Kirchner subsidized consumption as well as production of the hydrocarbon.

Since taking office, Macri has dramatically scaled back subsidies for residential gas consumers, citing that rates paid by consumers should more closely reflect real production costs.

National oil company YPF reported its first-ever sequential decline in shale hydrocarbon output during the first quarter, but said that tight gas now accounts for 20% of its total gas production.


By Charles Newbery

19 May 2016

Buenos Aires (Platts)–19May2016/241 pm EDT/1841 GMT Argentina’s YPF expects to be able sustain pump prices for fuel at current levels for the rest of the year after large hikes in the first half, as inflation is poised to slow in the second half of 2016.

“We foresee a scenario of slower inflation, and so there will be less necessity for us to raise our prices,” YPF interim CEO and CFO Daniel Gonzalez said at LatinFinance’s Argentina Finance Summit in Buenos Aires.

State-led YPF, which has a more than 55% share of diesel and gasoline sales, raised its pump prices by around 30% in the first five months of this year, along with its competitors such as Axion and Shell.

The right-of-center government of President Mauricio Macri, who took office in December, authorized the hikes to help sustain profits for refiners and service stations after a 45% depreciation of the local currency against the dollar since late last year.

Earlier this month, Energy Minister Juan Jose Aranguren said diesel and gasoline prices could go up further this year if the local currency depreciates more or global oil prices increase.

However, with expectations growing of currency stability, there is optimism that inflation could start slowing in the second half of the year after accelerating to nearly 40% in the first half from 26% in 2015. The speed-up came largely in April and May when the government implemented long-overdue hikes in utility rates, including for electricity and natural gas.

“We don’t see an inflation rate of one digit in the near term, but we expect a decrease in inflation in the next few months,” Gonzalez said.

The price hikes are designed to spur the development of energy resources after years of under-investment during the previous populist-left government, which kept energy priced below international levels between 2003 and 2015.

YPF has been funding most of its capital expenditures out of cash flow, including from its sales at the pump, which has helped it to increase production over the past few years. This year it has held output flat, despite a 20%-25% cut in capital spending.

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By Charles Newbery

19 May 2016

Buenos Aires (Platts)–19May2016/143 pm EDT/1743 GMT Argentina’s Mendoza province, once one of the country’s biggest sources of oil, is seeking to rebuild production by capitalizing on a recovery in investor confidence to offer 50 exploration and production licenses this year.

“We will hold the tenders for around 50 oil and natural gas blocks over the year,” Mendoza Governor Alfredo Cornejo said Thursday on the sidelines of LatinFinance’s Argentina Finance Summit in Buenos Aires. “The idea is that the exploration starts in 2017.”

Of the blocks, some are held under license currently but the operators have not invested in exploration according to the terms of their contracts on the guise of selling them off for a profit. The blocks will be offered to new operators in the tenders, Cornejo said.

“We want to stop the holding of licenses as a real estate business,” he said.

The goal is to rebuild oil and gas production to meet national demand, helping to reduce energy imports, he said.

“We want to supply more oil to the nation,” the governor said.

Argentina has been ramping up energy imports over the past decade, led by diesel and gas, and more recently of light crude from Nigeria.

Mendoza was the biggest source of oil 40 years ago, but it has sagged along with national production since the late 1990s and early 2000s on few finds, limited exploration and maturing reserves. In addition, a populist-left government, which ruled from 2003 to 2015, capped energy prices and restricted the movement of capital and trade, curbing profits and pushing oil companies to invest in countries with better potential.

While production has declined, there is processing and transport capacity available to handle additional supplies, plus human resources, Cornejo said.

While low global oil prices could put a damper on investment, there are expectations of a recovery in prices in the next two years, he said.

“That is why we need to hold the tenders now, so that when prices recover we are going to have more production,” he said.

Argentina is propping up local oil prices at between $54.90/b and $67.50/b, but the lower international prices are limiting the cash for capital expenditures.

In the meantime, there is potential for gas production to rise, given that domestic prices are averaging $5.20/MMBTu, up to $7.50/MMBTu with incentives.

Cornejo said gas production has gone up over the past three years in Mendoza.

“We expect it to go up more,” he said. “There is a market for the gas. Argentina has a gas deficit and we need to cover it.”

Argentina is running a 30% gas deficit that it is plugging by importing about 30 million cu m/d from Bolivia, Chile and off the global LNG market.

Cornejo said he expects the first investments through the tenders to be more speculative, as companies get a foothold in the country or expand acreage. But as the economy recovers from a recession, as is expected next year, and there is more confidence of the sustainability of the policies of the new right-of-center government of President Mauricio Macri, then larger and more long-term investment will come, he said.

“We have hopes that investments will grow over time,” he said.

Mendoza produces 15% of the country’s 520,000 b/d of crude and 5.5% of the 120 million cu m/d of gas, according to the Argentine Oil and Gas Institute, an industry group.


19 May 2016

Argentina’s education and sports ministry has closed a partnership with US IT company Cisco Systems to use ICT resources in technical education institutes in the country.

The deal was signed May 18 by minister Esteban Bullrich and Cisco Argentina president, Carlos Sakata during the opening of the federal education council in the city of La Rioja.

The partnership also comes after US and Argentina resumed their bilateral ties with the visit of US President Barack Obama to the country in March. On that occasion, the US chamber of commerce in Argentina said that US enterprises would invest US$2.3bn in the country over the following 18 months.

Argentina’s federal institutes will join the Cisco Networking Academy, gaining access to the ICT tools and e-learning platforms offered under the program. The country’s national tech education institute (INET) will be in charge of overseeing implementation.

The values involved and specific terms of the contract were not disclosed.

The ministry expects the deal to help reduce the IT talent gap in the country.

Citing data from consultancy and research firm IDC, Cisco said the gap between supply and demand of skilled ICT workers in Argentina reached 31% in 2015, compared to 27% in 2011.

Cisco’s program was created in 1997 and has reportedly benefited more than 6mn people via partnerships with educational institutes.

In March, Cisco announced it would be taking its Networking Academy initiative to Cuba, virtually the last country in Latin America to receive the program, via the island’s Universidad de las Ciencias Informáticas.


19 May 2016

BUENOS AIRES, May 19 (Reuters) – Argentine farmers began planting wheat for the 2016-17 season over the last week and should plant 4.5 million hectares, in line with forecasts despite heavy rains that damaged cropland last month, the Buenos Aires Grain Exchange said on Thursday.

That means Argentina, a major global exporter of wheat, will dedicate 25 percent more land to the grain this year than last, when 3.6 million hectares of land were planted with wheat.

Argentine agriculture has seen a boost since President Mauricio Macri, who took office in December, eliminated taxes and export caps.

The exchange said wheat farmers had planted 1.7 percent of the total area to be cultivated.

In April, heavy rains pounded much of Argentina’s central agricultural region, causing a loss of 785,000 hectares planted with 2015-16 season soybeans, according to the Exchange.

The harvest of soybeans, Argentina’s main crop, whose production should reach 56 million tonnes in the 2015-16 cycle, has advanced steadily in recent days, although it is still far slower than last year’s pace, the exchange said.

As of Thursday, farmers had harvested 61.1 percent of land dedicated to soybean cultivation, 9.8 percentage points up from the prior week. However, compared with the 2014-15 season, it is 26.4 points behind progress seen then.


By Marc Rogers

Thursday, May 19, 2016

Argentina’s new president, Mauricio Macri, is creating a buzz on the international circuit, but he won’t have an easy time installing a new paradigm in a deeply divided society.

On March 24, Argentina marked the 40th anniversary of the military coup that ushered in a brutal seven-year dictatorship in 1976. As has become customary, tens of thousands marched on Plaza de Mayo, in central Buenos Aires, to remember the atrocities of that era and chant the universal slogan, Nunca Mas—Never Again.

But this year, the march was different. Just 24 hours earlier, the same historic square had been adorned with the stars and stripes to welcome U.S. President Barack Obama on his first visit to Argentina. Obama’s presence did not sit well with those who remembered U.S. backing for the 1976 coup; an American president’s visit would have been unthinkable at any of the previous gatherings since the day of memorial was made a public holiday in 2005.

Obama’s attendance was a clear symbol of the radical change underway in Argentina. Four months earlier, the country had voted Macri into the Casa Rosada—the Argentine president’s executive office and mansion—breaking with 12 years of the Kirchnerismo ideology practiced by former Presidents Nestor and Cristina Fernandez de Kirchner. Since taking office in December 2015, businessman-turned-politician Macri has set about hastily redefining Argentina’s political, economic and cultural landscape. In his whirlwind first 100 days, he dismantled currency and capital controls, slashed export taxes, and settled a 15-year dispute with holders of defaulted debt. Gone is the fiery anti-imperialist rhetoric of the Kirchner administration; Obama’s visit and endorsement was a triumphant showcase for Macri’s campaign to “bring Argentina back into the world.”

Macri and his supporters claim this is the beginning of a bright new era for Argentina, in which the country is no longer held back by ideological struggles and can finally reach its potential as a regional or even global power. Macri has the backing of the local business community and is building cross-party political alliances. He has been a star figure at international summits and, until his name appeared in the Panama Papers leaks in April 2016, was showered in accolades by the world’s media.

However, this wave of positivism cannot disguise the challenges Macri still faces at home, where he must convince a deeply divided society to support a painful transition. As international headlines celebrated Argentina’s record-breaking return to global bond markets on April 19, public mood was turning as rampant inflation and a wave of job cuts led to a series of strikes and protests. Despite his electoral victory, the president’s orthodox economic policies and his background as part of the Argentine business elite still bristle with many in a broadly progressive population that has long suffered from inequality. Rather than embracing Macri’s promise of a new dawn, some fear a return to the darker days, with a rollback of the social gains made in recent years.

With the traditional honeymoon period for a new government now over, a fundamental question emerges: Can Macri succeed where no other conservative Argentine leader has before, and implement a modern, market-friendly paradigm in a country still traumatized by its late 20th-century experience with neoliberalism?

A “Miracle” Campaign: The Rise of Macri

“It was a miracle that Macri won,” admitted the president’s long-time political adviser and campaign strategist, Juan Duran Barba, in a recent interview with El Pais.

Winding the clock back 12 months, it was inconceivable to many that Macri would be the one to defeat the seemingly invincible Kirchnerist movement. In a country that had never democratically elected a conservative president, the son of a business magnate at the head of a relatively young center-right party seemed like a difficult sell.

Macri’s Republican Proposal party, known as Pro, was one of several that emerged from the rubble of Argentina’s 2001 economic and political crisis. The Kirchnerist Victory Front (FpV) was another product of that era, but was firmly rooted in Peronist thinking. Pro was different: It drew together dissident politicians from diverse backgrounds, but its core personnel and identity, like that of its leader, were drawn from outside the traditional political sphere—businesses, think tanks and nongovernmental organizations.

After failing at his first attempt in 2003, Macri was elected mayor of Buenos Aires in 2007, and over two terms nurtured a solid support base among the predominately urban middle class voters of the capital. Yet it still looked like too big a step to launch a national campaign without the established political structures and mobilization capacity of the country’s traditional parties. Though Cristina Fernandez could not run for a third term, her preferred candidate and FpV nominee, Daniel Scioli, a two-time governor of the crucial province of Buenos Aires, held a double-digit lead in opinion polls going into the electoral season.

There are many factors that could explain the turnaround, but it’s clear now that at least three things were not fully appreciated at the time: the degree of simmering discontent with the ruling administration; the failure of the FpV to find a suitable successor to Fernandez; and the ability of Macri’s campaign to exploit both.

Rather than attempt to construct his own party structure across Argentina’s vast territory, Macri wisely formed an alliance with the Radical Civic Union (UCR), the country’s oldest political party that boasts a solid, if depleted, national base. The new coalition sought to capitalize on social frustrations after more than a decade of the same leadership—with its inevitable shortcomings—and named itself Cambiemos, or “Let’s Change.”

However, the key turning point came in the Buenos Aires mayoral election in July 2015, less than a month before the national presidential primary, after Macri’s candidate, Horacio Rodriguez Larreta, narrowly won the race to succeed him in the post. Speaking at the celebration that night, Macri wrong-footed many by declaring that, as president, he would not reverse flagship Kirchnerist social policies such as the Universal Child Allowance or privatize state-run airline Aerolineas Argentinas and oil company YPF.

While risking a backlash from his conservative base and exposing himself to accusations of flip-flopping, Macri set up a contest in which he could sidestep attempts to typecast him as a member of the traditional elite and avoid being drawn into a traditional battle of left-versus-right politics.

“Kirchnerism has tried to sketch a caricature of ‘who Macri is,’ but it’s not real,” read a missive released by Pro to justify the change in discourse. “They are going to end up fighting against a caricature that doesn’t exist.”

This suited Pro’s modern ethos, inspired more by the entrepreneurs of Silicon Valley than Chicago School academics. “Our ideology is to solve, to act, to build concrete things,” Macri said on the campaign trail. Unattached to a rigid doctrine, he could present himself as a business-friendly candidate who would make ending poverty in Argentina his No. 1 priority. By annexing certain Kirchnerist policies into his manifesto, always with the caveat that he would administer them more effectively, Macri could reassure voters that they would keep their basic social rights and focus his promise of change on less-daunting issues of style. He pledged to replace the self-eulogizing and confrontational ticks of Kirchnerism with a government of unity, transparency and dialogue. The message was always positive and aspirational; together, he said, Argentines could create a “happiness revolution.”

Tardy efforts by Scioli to pin Macri down on the specifics of his economic plan or highlight flaws in his track record as city mayor were brushed aside as part of a fear campaign. Macri became the only option for voters wanting something different, whatever that might be. “You don’t represent change,” Macri said to Scioli during the final presidential debate. “You decided to represent continuity.”

On Nov. 22, 2015, the miracle was confirmed: Macri was narrowly elected Argentina’s new president, and his party would also control the city and province of Buenos Aires, a nucleus containing more than a third of the country’s total population.


However impressive Macri’s electoral victory was, he faces the formidable task of implementing a radical paradigm shift toward his vision of a 21st-century Argentina, where politics takes a backseat to problem-solving. The president took office with a divided electorate—49 percent voted against him in the electoral run-off—and a minority in both houses of Congress; over half the provinces around the country are run by opposition governors. He probably doesn’t need reminding that the last non-Peronist president to serve a full term was Marcelo T. Alvear in 1928.

The key battleground, as ever, is the troublesome economy, which wary locals will tell you is doomed to suffer “a crisis every 10 years.” Here, Macri has an advantage rare for a new president since the return to democracy three decades ago. The country he inherited is a long way from the hyperinflation of 1989 or mega-default of 2001, which both prompted a break in constitutional order. At the same time, few would argue that the economy was in good health when the presidential baton changed hands.

Macri took over an economy shaped, and contorted, by 12 years of Kirchnerismo, a broadly Keynesian model with heavy state intervention to redistribute wealth and protect domestic industry. In the early years after his election in 2003, Nestor Kirchner oversaw a rapid recovery from the debt default, the country’s worst-ever crisis. He used revenues from a commodity-led export boom to stimulate domestic demand, rebuild local industry, and tackle critical social problems. Confidence in the economy returned as the government maintained twin budget and trade surpluses, a stable exchange rate and a relatively orthodox monetary policy. International reserves built up quickly, and a restructuring of most of Argentina’s defaulted debt relieved pressure on the external accounts.

Sidelined from the global financial system and with the help of aggressive fiscal expansion, the country navigated the credit crunch comparatively well. But by then, domestic capacity constraints were beginning to manifest themselves in the form of soaring inflation and infrastructure bottlenecks. As export demand waned and capital flight accelerated, evidence mounted of a recurring structural problem in the Argentine economy: a shortage of dollars to cover import needs and service foreign debt.

The key battleground, as ever, is the troublesome economy, which wary locals will tell you is doomed to suffer “a crisis every 10 years.”

Immediately after winning a landslide re-election in 2011, Cristina Fernandez—who had succeeded Nestor, her husband, in 2007—tried to stave off an inflationary devaluation by introducing strict currency controls and import restrictions. This set the tone for a difficult second term, characterized by anemic growth, entrenched double-digit inflation and increasingly heavy-handed economic management. Political meddling in data collection, particularly regarding inflation, shattered the credibility of official statistics and deepened suspicions of trouble. The Central Bank was hemorrhaging reserves to prop up the currency, while a parallel “blue dollar” market, running at a premium of more than 50 percent over the official rate, only added another layer of distortion. While external demand floundered, the government doubled down on efforts to stimulate the internal market, and shore up political support, by adding new social programs for housing and education to existing energy and transport subsidies and above-inflation hikes for pensions and welfare. Price controls were expanded to soften the impact of inflation on low-income households.

Though this battery of measures helped avert a deep recession, they did little to restore confidence in the government’s handling of the economy, and became increasingly unsustainable as the budget deficit widened. The government couldn’t seek international financing to stabilize the situation without first reaching an agreement to settle with the “holdout” creditors who had refused to accept the debt restructuring on Argentina’s defaulted debt from 2001 and continued to demand full payment. Fernandez refused to cave, leading a campaign against the so-called vulture funds that were challenging the country’s sovereignty. The message resonated among her core supporters, but by the time of the 2015 presidential election, there was broad consensus that something had to give. The public decided it would be the Kirchnerismo model.

Macri arrived at the Casa Rosada with a promise to swiftly remove the straitjacket that had made the Argentine economy one of the least free in the world. Within a week of taking office, his financial team had lifted all currency and capital controls and removed export taxes for agricultural and industrial goods; levies on the mining sector were eliminated shortly afterward. The Central Bank returned to a more orthodox approach, making inflation control its main priority, hiking interest rates, and ending monetary emission to finance the Treasury. To tackle the fiscal deficit, the government began rolling back subsidies for utility tariffs and public transport, which had reached nearly 4 percent of GDP, and streamlining the public sector. Macri declared a statistical emergency, replaced the leadership at Argentina’s statistics office, INDEC, and invited the International Monetary Fund to renew its annual review of the economy. And at the end of February, the government announced that it had reached an agreement with the holdout creditors to settle the 15-year debt conflict and regain access to international credit markets.

The main thrust of Macri’s plan—grounded, so far, in fairly textbook neoliberal thinking—is to open up Argentina to the global economy and encourage foreign investment. While his economic team cleared the playing field at home, the president was busy forming new diplomatic and commercial relationships abroad, returning to Western allies that the Kirchners had frequently criticized. In the month before Obama’s historic visit, Macri welcomed French President Francois Hollande and Italian Prime Minister Matteo Renzi to Buenos Aires. In January, despite suffering from a cracked rib, he traveled to Davos to become the first Argentine leader in 12 years to visit the World Economic Forum, holding meetings with several Western leaders and CEOs of multinationals such as Coca-Cola, Facebook and Total.

Macri’s charm offensive and the urgency of his reform charge have impressed many in international circles. “I can tell you President Macri is a man in a hurry,” said Obama after their bilateral meeting in Buenos Aires. “I’m impressed because he has moved rapidly on so many of the reforms that he promised, to create more sustainable and inclusive economic growth, to reconnect Argentina with the global economy and the world community.” IMF chief Christine Lagarde also heaped praise, saying, “Macri’s economic policies are very encouraging. We hope they will stabilize the Argentine economy.”

Macri is confident that his plan will work, claiming that inflows could reach $20 billion in 2016, more than 10 times the preliminary 2015 figure. “Opening up to the world will bring enormous investments,” he remarked after another series of bilateral meetings on the sidelines of the recent Nuclear Security Summit in Washington. The president has highlighted the massive potential that Argentina offers investors in the agricultural, mining, tourism and renewable energy sectors. And he says the settlement with the holdouts—full payment was completed through a successful international bond offering in mid-April—will send a powerful signal to potential investors.

Yet this 180-degree shift inevitably comes with short-term consequences, which in turn could undermine Macri’s ambitious economic plans. Headline indicators today do not make for pretty reading. The Argentine peso has lost more than 50 percent of its value since controls were lifted, and has suffered from wild daily swings. This stark devaluation has fed through to local consumer prices, which rose by an estimated 19.2 percent in the first four months of the year. Forecasts for annual inflation now oscillate around 35-40 percent, but could edge even higher. Higher input costs have squeezed local business margins, and unions registered over 140,000 jobs lost between January and April.

Macri’s charm offensive and the urgency of his reform charge have impressed many in international circles.

The government puts this down as the necessary cost of “normalizing” an economy in disarray, and says it expects the numbers to start improving in the second half of 2016. However, the lessons of prolonged austerity in Europe show that the recessionary effects of fiscal and monetary tightening can undermine efforts to redress economic imbalances. With consumer spending squeezed and the government committed to bringing down the budget deficit it inherited—estimated at 7.1 percent in 2015—the short-term outlook for domestic demand is not promising. The devaluation may have provided a boost to the trade balance, but the deep recession in Brazil and slowdown in China, Argentina’s two main trading partners, will weigh on export demand. That leaves the government’s plan dependent almost entirely on foreign investment to pull the economy quickly out of a recession that is expected to hit at least 1 percent in 2016.

In this climate there are reasons to be skeptical of the government’s claim that it will soon be “raining dollars” in Argentina. Macri’s reforms have been well-received by the investment community, but that doesn’t guarantee that businesses will get off the sidelines before the economy has passed through the worst of the turbulence. According to one recent survey, 60 percent of local directors said that they would hold back new investments until inflation was brought under control. Other demands include a more detailed plan from the Finance Ministry on exactly how it plans to balance the budget and cut inflation to single digits by 2019.

Though too soon to draw any conclusions, there have been signs that the results don’t match the initial enthusiasm for the government’s new economic agenda. Finance Minister Alfonso Prat-Gay promised an influx of $20 billion in the first four weeks after currency controls were lifted, including some $6 billion from soy exporters who had been hoarding grains precisely so as to benefit from lower taxes and a market-driven exchange rate. But the farmers delivered less than half that pledge, and discounting a $5 billion one-year loan from a group of international banks, the Central Bank’s reserves actually fell in the first three months of 2016. The bank was also forced to jack up interest rates to a punitive 38 percent to stabilize the peso, and had to divert 10.6 billion pesos, roughly $715 million, to finance the Treasury.

The government does have the advantage of a relatively low debt pile—a positive legacy of the Kirchner era. Now that the holdouts have been paid off, there will be considerable room to borrow to cover immediate financing needs and allow Macri to kickstart his pledge to launch “the largest infrastructure plan this country has ever seen.” But unless interest rates charged on new debt fall from the 7.1 percent average yield offered in the first bond issuance, this source of finance also has clear limitations.

This all leaves key questions that can only be answered with time: What will the government have to do to win the confidence of global investors? And what political and social costs will that have at home?

Resistance to Change

When asked in March if he had a plan B in case foreign investment is not forthcoming, Macri simply replied, “Why do we need one if plan A is working?”

The president may not want to talk about it, but if direct investment is slow to materialize, or if it does not translate into growth and jobs quickly enough, the government will be forced to make difficult political decisions, balancing the demands of foreign creditors with the tolerance levels of the local population.

There are reasons to be skeptical of the government’s claim that it will soon be “raining dollars” in Argentina.

Some market analysts are already saying the government needs to accelerate drastic reforms to convince investors still unsure about Finance Minister Prat-Gay’s gradualist approach to bringing down inflation and the budget deficit. It is a view shared by the more hawkish figures within the ruling party. But this may underestimate the challenge Macri faces in maintaining popular support for his transformation in a country that has painful memories of previous attempts at economic liberalization.

Argentina’s two periods of neoliberal reforms—the 1976-1983 military dictatorship and the 1990s under then-President Carlos Menem—both ended in debt and currency crises, and left a legacy of poverty and inequality. Times have changed since then, and Macri, whose family name is synonymous with the business elite that profited most in these periods, has rebranded himself in the mold of “compassionate conservatism.” But he will still face an uphill battle in convincing voters that this time will be different when the early policy mix has such a similar flavor; the public voted for change, not a return to those darker days.

Opinion polls show that Macri still enjoys support from a majority of the population, though his approval ratings have fallen since the start of his presidency. Even though people are increasingly worried about the country’s economic situation, they attribute most of the blame to the previous government and are prepared to give Macri’s government time to correct the situation. This fits into Macri’s official plan to front-load painful reforms while he has political capital to spare, and can still point to the “difficult inheritance” left by the previous government. That said, this strategy wasn’t helped by recent figures showing that the economy actually grew by a respectable 2.1 percent in 2015.

The question is how long society’s hunger for change will last once households really start to feel the pinch. The reaction to a 300 percent hike in gas and water tariffs and the doubling of public transport fares, delivered by a government oozing confidence following Obama’s visit and key victories in Congress, suggests appetite is on the wane. The move fueled criticism that Macri’s administration, led by a Cabinet loaded with former CEOs, is pandering to business interests while making ordinary households and workers shoulder the costs of austerity. While tax cuts were rushed through, measures to soften the impact on consumers have been minimal, and funding for a number of social programs has been slashed. The Catholic University of Argentina reported that 1.4 million people fell into poverty in the first quarter of 2016 alone, taking the national rate up to 32.5 percent. In this climate, even one of Macri’s political allies and a leader in the Cambiemos coalition balked at the latest utility hikes, taking to Twitter to say “you can’t suffocate the society that is supporting our change.”

Macri has now announced several measures to counterbalance the impact on consumers, including an increase in the threshold for income tax and the elimination of the value-added tax on basic food items. He also confirmed an expansion of the Universal Child/Pregnancy Allowance welfare program, which distributes a fixed income to unemployed or low-income families. “I work every day to find ways to make this re-ordering of the economy as painless as it can be,” said a defensive Macri in a recent TV interview.

He might have to try even harder if he wants to avoid more social unrest. Argentina’s powerful labor unions are becoming agitated as job losses mount and inflation erodes purchasing power. On April 29, five central labor unions came together in a massive march in protest at the recent wave of layoffs, estimated to be reaching nearly 150,000 across the public and private sectors. The Argentine Industrial Union warned that the sector would have to trim up to 200,000 jobs this year as higher utility costs exacerbate problems caused by the slump in neighboring Brazil. Hugo Moyano, the long-time head of the umbrella General Workers Confederation who appeared alongside Macri during the election campaign, said there would be actions if the government continued to implement “perverse policies.” His son Pablo, leader of the powerful truck-drivers union, recently warned the government that “the honeymoon period is over.”

The question is how long society’s hunger for change will last once households really start to feel the pinch.

The government, perhaps aware of the potential for disruption, has introduced a new protocol for public demonstrations, requiring prior notice and authorizing police to use force to disperse protesters blocking streets. That may not sound particularly draconian, but it has rung alarm bells over the potential criminalization of social protests. The United Nations and Amnesty International have expressed concern over the “arbitrary detention” of political and social leader Milagro Sala in the northwestern province of Jujuy, now governed by Macri ally Gerardo Morales. Sala, a polemic figure with close ties to Kirchnerismo, was arrested for staging a sit-in in the provincial capital. She was later charged with embezzling state funds and remains in custody, but some fear the questionable judicial process could set a dangerous precedent.

At least two rallies staged by dismissed workers have also been violently dispersed by police using tear gas and rubber bullets. In early January, photos circulated of a female protester in La Plata, her back riddled with bullet wounds after police fired on a demonstration organized by state workers that had been laid off. Security is another area in which Macri will have to tread carefully: Though there are calls from some sectors to take a tougher stance against those protesters who regularly cause traffic chaos by blocking streets in Buenos Aires, there is little tolerance for police repression in a country that has a long history of institutional violence. After all, it was the killing of two protesters by police at a rally in 2002 that forced then-President Eduardo Duhalde to call the early elections that ushered in the Kirchner years.

Hearts and Minds

Of course, the battle for hearts and minds extends beyond the economy, though here the government’s policy approach has been less clear and consistent so far. If Macri delivers on other plans that are backed by much of society—creating a more open and transparent state, weeding out corruption, and improving institutional quality—he could regain at least some of the political capital lost in the downturn.

This is especially true given Macri’s sophisticated public relations team, which has become adept at using social media to engage directly with the electorate and carefully sculpt the president’s image. The government has also backtracked on or modified some policy announcements that provoked a hostile reaction from the public, demonstrating that it is not oblivious to the national mood. With some shrewd diplomacy, it softened the domestic controversy over the timing of Obama’s visit with the announcement that the U.S. had agreed to declassify military and intelligence records from the dictatorship era, a long-held demand of human rights groups. It was a savvy political move with a key message to the skeptics: We can achieve much more by engaging with, rather than lambasting, the U.S.

Macri, who so far has received mostly favorable treatment from Argentina’s biggest private media outlets, will hope attention is focused on issues other than the economy. He will undoubtedly be pleased that corruption investigations against several high-ranking members of the previous government, including Cristina Fernandez herself, have started to advance quickly in the judiciary. The state, via its Anti-Corruption Office, has requested to be a plaintiff in multiple cases, and Macri is preparing to table a new Repentant Law to reduce or dismiss punishments for those who provide “precise, verifiable, and useful” information about a corruption investigation. Though Macri says the executive is not interfering in the judiciary, any convictions of ex-officials will inevitably provide him with a popularity boost among voters.

There is widespread support for combating the graft and abuse of power that has permeated the Argentine state for so long. However, an anti-corruption drive that is perceived as partisan will only exacerbate existing divisions. Macri’s own image has been tarnished globally after his name appeared in the Panama Papers leaks as director of an offshore company set up in the Bahamas in 1998. The president quickly denied any wrongdoing and explained that he had no active role or shares in the family company, which he said was set up legally; rather, he said, he was simply listed as an “occasional director.” He is now being investigated, but even if his explanation is valid, the revelation, coming as Macri crusades against corruption and tries to sell his vision of Argentina to the world, was damaging. The head of the Anti-Corruption Office, Pro member Laura Alonso, came to his swift defense, raising questions about her ability to impartially investigate her own party leader.

It was a savvy political move with a key message to the skeptics: We can achieve much more by engaging with, rather than lambasting, the United States.

Macri’s popular campaign promise to improve institutional quality in Argentina after the encroaching executive under Kirchnerismo is another area that will be closely scrutinized. In his first 100 days, the president issued 11 emergency decrees, including the controversial designation of two Supreme Court judges. The profiles of his two nominated candidates were widely praised, but the president could offer no real justification for bypassing the standard congressional route. Under pressure, Macri reversed his decision, later claiming that he was “over eager” to fix problems.

Another polemic decree changed the country’s Media Law, which had received cross-party approval when it was passed in 2009 and was later backed by the Supreme Court after a series of legal challenges. The law ostensibly sought to break down corporate monopolies and support alternative outlets in the broadcast-media sector. While there were widespread complaints over how the previous government implemented the law— primarily as a weapon in a drawn-out conflict with the country’s largest media group, Clarin—Macri’s unilateral decision to scrap the bill led to street protests and a hearing at the Inter-American Court of Human Rights. Critics say the president is cozying up to Argentina’s powerful private media groups, which in return shelter him from unfavorable coverage. Furthermore, some journalists say that the new government is gradually crowding out dissident voices in public-sector television and radio, undermining talk of pluralism and exposing Macri to accusations that his promise of change was really about substituting Kirchnerist sympathizers with his own allies.

Eyes on 2017

An area in which Macri has enjoyed considerable success so far is in fostering working relationships with opposition parties. On his first day in office, the president met with each of the five candidates he had defeated to discuss common areas of interest. The day after, he shared a lunch with all the provincial governors, and has maintained a fluid dialogue since, using the carrot of federal funds to negotiate with those from opposition parties. He also took the unusual step of inviting Sergio Massa, a

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