Mauricio Macri is due to be inaugurated as Argentina’s next President on December 10 having won the November 22 election. This represents a vote for change as the Peronist candidate Daniel Scioli was seen as representing a continuation of the Cristina Fernandez administration’s mantra.
With rampant inflation of at least 25%, stagnant growth, an uncompetitive exchange rate in conjunction with capital controls, insufficient foreign exchange reserves (USD22bn in October), a burgeoning fiscal deficit (~7% of GDP) and an ongoing dispute with the ‘holdout’ creditors barring Argentina from international debt markets it is perhaps little surprise that voters opted for a new administration with a stated intent to tackle these areas. Added to this, the new administration should consider tackling corruption and try to instil a revival in foreign direct investment.
However, Macri faces a huge challenge to implement his reform agenda when one considers that his coalition only controls 91 of 257 seats in the Lower House of Congress and will need the votes of supporters of Sergio Massa, a Presidential candidate defeated in the first round. Massa is reported to have tweeted "We'll support those measures that are good and we'll signal those we think are bad."
Macri has certainly made a positive start in terms of the appointments to his key ministerial team. Notably, Alfonso Prat-Gay has been named as the new Finance Minister; he is a former executive from JP Morgan Chase and was a Central Bank President. His appointment is encouraging as during his time at the Central Bank inflation fell to 5.3% in 2004 from 40% in 2002 which saw him win the 2004 Euromoney Central Bank Governor of the Year Award, although the then President Nestor Kirchner did not renew his contract with reports suggesting his drive for greater Central Bank autonomy was a factor. Frederico Sturzenegger is proposed as the next head of the Central Bank; he is an MIT Boston economist by training, a former President of Banco Cuidad and chief economist at YPF. Encouragingly, Susana Malcorra has been appointed as the Minister of Foreign Affairs signalling a more constructive approach to international relations; she will leave the position as head of the United Nations Secretariat office coming highly recommended by UN Secretary-General Ban Ki-moon who commented “I know from my conversations with world leaders and civil society that Ms. Malcorra is well-respected across the world.”
The rating agencies have acknowledged some improvement already: Moody’s upgraded the outlook for Argentina’s Caa1 issuer rating to positive from stable reflecting some optimism that a resolution could be reached with the holdout creditors. This is important as Argentina needs access to the capital markets given its weak reserve position. Investors are hopeful that the new leadership will tackle inflation, create a more independent central bank and move to a single exchange rate once conditions allow. The new cabinet appointments are encouraging, as particularly, in the absence of sizeable foreign exchange reserves, implementing an orderly adjustment to the exchange rate represents a major challenge. Thus, while Argentina looks to be taking a step in the right direction the journey to attain investment grade status is likely to be long and arduous one.