Mauricio Macri Was Supposed to Be Different

Argentine President Mauricio Macri rose to power in 2015 promising to be a different kind of leader. He emphasized a message of economic competence alongside a pledge to undo the policies of his predecessor, Cristina Fernández de Kirchner, including heavy social spending, currency controls, and economic protectionism. Macri’s message was burnished by a high-profile business career, family connections to Argentina’s financial aristocracy (he is the son of Italian-Argentine tycoon Franco Macri), and stints at Columbia Business School and the Wharton School of Business of the University of Pennsylvania. All of this has made Macri a darling of Wall Street and the Trump administration, and the great hope of the international community for restoring Argentina to its former economic glories. In 2016, Time magazine named Macri one of the world’s 100 most influential people.

Less than three years after his election, having failed to deliver on his promises, Macri finds himself in a position far too familiar to Argentine presidents: negotiating with the International Monetary Fund for a loan to stabilize the economy.

News of the loan, estimated at $30 billion, rocked the international financial community and caused a ruckus at home by bringing back painful memories of the harrowing financial collapse of 2001 to 2002 that left millions of middle class Argentines poor and destitute, the political system in tatters, and more than 20 people dead in protests and looting. Many blame IMF-imposed policies for the disaster, and those who don’t blame the IMF nonetheless hold the international organization responsible for having failed to forestall the crisis. Not surprisingly, opposition leaders from the Peronist party were quick to denounce the negotiations with the IMF. Many of them put up signs on their desks in Congress that read “IMF OUT!” Even members of the president’s governing coalition have warned that if Argentina turns to the IMF, “the remedy could prove worse than the disease.”

The Argentine public, which has an intense loathing of the IMF, wasted no time in showing its disapproval of the Macri-negotiation loan. Many took to the streets of Buenos Aires in impromptu demonstrations reminiscent of the ones that erupted in 2001. Public opinion surveys reported that 75 percent of respondents said that they would not support a government request for assistance from the IMF, including 58 percent of those who voted to put Macri in office. It was not just the bitter memories of the 2001 crash that distressed the public. Older Argentines remember the country’s long and tortured history with the organization. The IMF’s first loan to Argentina dates to 1957, and the organization has been involved in all of the many economic crisis that have since befallen the country.

Sensing the high political stakes of the negotiations and the emotions surrounding the IMF among ordinary Argentines, Macri felt compelled to address the nation last on May 8. In a somber televised speech, he stressed that the loan (whose value has not been made public) will allow the nation to “face the new global scenario and avoid a crisis like the ones we have faced before in our history.” He was also speaking to investors at home and abroad, in the face of distressing economic news. The Argentine peso has dropped by more than 18 percent so far this year, and in the days before Macri’s speech, his government had raised interest rates three times to 40 percent, one of the world’s highest. To boost Macri’s message, and increase confidence in Argentina, his economic team stressed that the country’s problems are strictly of a liquid nature (a lack of cash) and not related to solvency, or the inability to pay its financial obligations.

For its part, the IMF is on a mission to atone for its past sins in the hope of restoring its reputation in Argentina by emphasizing that this is not the same IMF that the Argentine people remember from more than 15 years ago. In a recent trip to Argentina, aimed at normalizing relations with the country that is angriest toward the organization, IMF chief Christine Lagarde was asked by Spain’s El País “What was the IMF’s greatest mistake during those great Latin American and Asian crises of the late 1990s?” She responded that: “We underestimated societies and economies’ ability to absorb such tough, frontal treatments. … At times we went in too deep and too fast for society to deal with it.”

Where did things go wrong for Argentina this time? Some of the blame certainly resides with the previous administration. Fernández and her late husband, former President Néstor Kirchner, are rightly credited with bringing Argentina back to economic stability after it defaulted on a debt obligation of more than $100 billion in 2002. They did so, in part, by resolutely embracing, despite pressure from international investors, a mixture of economic strategies they inherited, including de-linking the Argentine peso from the U.S. dollar (a measure adopted in the 1990s to deal with hyperinflation), and devaluing the peso as a means to boost exports. By 2007, Argentina was able to pay its debt in full to the IMF, and by the time Fernández left office in 2015, the country had made considerable progress reaching settlements with private lenders. Macri concluded those negotiations in 2016, shortly after entering office.

But the Fernández administration did not prepare Argentina for the economic slowing-down that began in 2012, with the cooling off of the demand from China for Argentine commodities. It was China’s seemingly insatiable thirst for commodities, especially soybeans, that underwrote Argentina’s economic recovery. To make matters worse, the Fernández administration was less than candid in disclosing the state of the economy after 2012. For this, the IMF censured Argentina in 2013; the censure was lifted in 2016 after the Macri administration improved transparency standards. In keeping with the populist strain that fuels the Peronist movement, Fernández spent lavishly on social programs and the nationalization of numerous companies; her government was also plagued with rampant corruption. Shortly after leaving office, Fernández was indicted for scheming with her public works minister to steal millions of dollars intended to improve the public infrastructure.

But Macri also shares some of the blame. He has been dependent on foreign investment, which has taken a big hit since last year, to finance economic growth and fuel employment. He has also relied on high-yield debt bonds to lure foreign investors and provide a questionable sense of confidence in the Argentine economy. Just last year, Argentina sold $2.75 billion of U.S. dollar-denominated 100-year bonds at an effective yield of 8 percent, quite remarkable considering that the country has defaulted on its national debt eight times in the last 200 years. Macri has also failed to deliver on his promises to cut public spending (by being unable to eliminate some the popular social programs put in place by the previous administration to help in the post-2001 economic meltdown), to rein in corruption, and to bring down inflation. This was all part of Macri’s electoral pledge to “make Argentina normal.”

Despite the emotions surrounding Argentina’s “return” to the IMF, it is unclear what impact this will have on the Argentine economy and on Macri’s future. A lot will depend on the loan itself. The type of loan being negotiated by Argentina — a flexible credit line — is reserved for nations whose economic fundamentals are basically solid and that are pursuing IMF-approved policies. Countries are expected to repay the money in three to five years. In the best-case scenario, the loan will serve to calm markets, to reassure investors that things are under control, and to restore financial stability. All of this, in turn, could set Macri for a successful re-election. This is certainly the hope of analysts on Wall Street, who welcomed the news of the IMF loan as a “bold and determined move” intended to boost investors’ confidence in Argentina’s ability to pay the debt it already has.

If, by contrast, the loan fails to work its magic and serves to usher in another era of economic uncertainty and crisis, followed by austerity measures and bailouts, Macri’s re-election will seriously be jeopardized, and Argentina will once again find itself adrift. It will also prove that the end to the cycle of booms and busts that many thought had been relegated to the dustbin of history with the economic crash of 2001 and a seemingly miraculous post-crisis recovery was all but a mirage.

Update, May 18, 2018, 10 p.m.: This article was updated to clarify several points.