President Macri to woo investors back to Argentina after years of isolation

As only a relative newcomer to politics, 56-year-old engineer Mauricio Macri last December pulled off a surprise win in Argentina’s presidential elections, and with it brought to an end 12 years of “Kirchnerismo”, the political movement named after the late President Nestor Kirchner and his wife and successor in office, Cristina.

He did it – beating off Ms. Fernández de Kirchner’s chosen successor Daniel Scioli in the process – by uniting behind him all those who wanted a dramatic shift from Kirchnerismo, during which its three terms in power managed to isolate Argentina from the world, cut it off from the global economy and empty its treasury.

In a presidential campaign built on the premise of change, Mr Macri – an experienced businessman who was making deals with the likes of Donald Trump when he was just 24 years old – vowed that swift and radical economic transformations would have to be implemented to win back market confidence.

The first big alteration came by actually winning the election itself: his center-right party’s victory in December ended a reign of 70 years by Peronist governments.

“We made possible what was really impossible. At some moment, the Argentinean people decided to change and move forward, and lose the ties with our past and to better our future,” Mr Macri told the Washington Post of the triumph in February.

Now, as Mr Macri approaches one full year as president, he can undeniably say that he’s living up to many of his promises. Indeed, few countries have so dramatically snubbed international investors only to win them back again as effectively as Argentina is doing under Mr. Macri.

During his first 100 days in office, he went about clearly diverging from his predecessor’s methods, swiftly moving away from the populism that characterized the previous government and carrying out a string of major economic and political measures to bring his country back into the good books of international markets.

First and foremost, he quickly sought to end a 15-year-long dispute with US creditors that began after the country defaulted on its debt in 2001. After only four months into his term in April, he did just that, striking a $4.65 billion agreement after a weekend of marathon negotiations, effectively drawing to a close the long-running saga with creditors led by US hedge fund Elliott Management. The deal was made possible by a “course-correction for Argentina that was nothing short of heroic”, proclaimed US attorney Daniel Pollack, who was appointed to find a solution to the legal action brought by investors.

President Macri has also addressed key structural issues, such as the lifting of currency controls and the reduction of administrative restrictions to international trade with the intention of attracting investment flows that will make Argentina globally competitive again. Mr Macri’s immediate pro-market stance was welcomed in the World Economic Forum back in January, where he was the first Argentine president in 12 years to speak at the event’s most prominent meeting of global investors.

International backing

While plainly distancing himself and the country from South America’s leftist bloc, old allies of former President Cristina Fernández, and at the same time actively seeking a thaw in relations with Western capitals in order to seek new investment, Mr Macri’s World Economic Forum appearance was quickly followed by the visits to Argentina of French President Francois Hollande, Italian Prime Minister Matteo Renzi, and most symbolically, US President Barack Obama.

On a historic two-day visit to Buenos Aires in March that marked a detente after years of tensions, Mr Obama highlighted that Argentina under Mr Macri served as an example for other countries in Latin America, praised the fast pace of reforms to strengthen the economy, and said the country was now poised to play a more influential role on the global stage.

“I can tell you President Macri is a man in a hurry,” Mr Obama told a joint news conference after the leaders’ talks. “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. Argentina is re-assuming its traditional leadership role in the region and around the world.”

Following Mr Obama’s visit – which included discussions about how to identify barriers impeding greater trade flows between the two economies, as well as the future possibility of a free trade agreement – the American Chamber of Commerce in Argentina said US firms would invest $2.3 billion in Argentina by the end of 2017, including more than $100 million each from General Motors Co, Dow Chemical Co, AES Corp and Ford Motor Co.

So just how has Mr Macri managed to win back investor confidence so quickly? In short, through greater credibility, according to the Financial Times.

“Indeed, reform of the state-run Indec statistics institute is one of the pillars of this trust-building strategy,” underlined a recent FT article. “When the Indec announced last month that poverty levels were at 32.2% of the population, compared to the previous administration’s claims last year of 5%, many observers who value the truth (perhaps perversely) saw this as good news.

“Transparency has also returned to economic policymaking. The central bank adopted an inflation-targeting regime last month, setting a target next year for 12-17%, which is broadly seen as credible; and many celebrated when the Finance Ministry presented a budget to congress with realistic assumptions for growth and inflation for the first time in many years.”

In a move to further strengthen investor confidence, President Macri’s government along with the Argentina Investment and Trade Promotion Agency organized the first annual Argentina Business Investment Forum in Buenos Aires in September.

Gathering business leaders and government officials from Argentina and all over the world, the forum served as a springboard for showcasing investment opportunities and to entice high-level meetings between Argentinean business, government leaders and international investors and partners. Investment opportunities worth approximately $240 billion were identified across multiple sectors, both at federal and local levels, including in transportation infrastructure, power and renewable energy, mining, oil and gas, real estate and tourism.

“The private meetings with companies were crucial,” Vice President of Argentina, Gabriela Michetti told The Worldfolio Magazine. “It was possible to get a feeling for the projects they had already determined. In some cases, companies who already have investments in Argentina wanted to increase them. In one conversation, I had with one of the executives, he told me that he had met with the Minister of Energy in order to request bidding documents, as well as to inquire about the distinct possibilities of tenders that existed in the area of renewable energy. Another CEO said they were doubling his company’s plant in Mar de Plata. And there was another CEO who mentioned that they were considering ways to increase their exploitation of lithium.”

The VP revealed that so far this year Argentina has received an increase of $35 million in new investments, with some companies doubling their current outlays in the country.

IMF lifts censure

The next important milestone for President Macri and his government came on November 9, 2016, when the International Monetary Fund lifted an unprecedented censure it had placed on the previous administration in 2013 for tampering with statistics.

The fact that the government opened up its books to the IMF for Article IV consultations in September after the multilateral lender was abruptly expelled from the country a decade ago was already a measure of just how much things have changed under Mr. Macri. The IMF had last held a consultation, normally annual affairs for IMF members, in Argentina in July 2006.

“The changes to the macroeconomic, regulatory and business environment clearly have the characteristics to boost investments,” Alejandro Werner, director of the IMF’s Western Hemisphere Department, said in a conference in Buenos Aires on September 29.

He said the investments would come “slowly, as has been the international experience, but in significant magnitude in coming years.”

Announcing the withdrawal of the censure, IMF Managing Director Christine Lagarde said in a statement: "[The] IMF's Board decision to remove the Declaration of Censure is a testament to the extraordinary efforts made by the new Argentinean administration to strengthen the national statistics agency and produce reliable and trustworthy data.

"I would like to commend the authorities for their commitment to transparency and determination to improve the accuracy official data in such a short period."

Challenges remain

Despite the obvious massive progress achieved in terms of the investment climate by President Macri during his first year in charge, it’s not all plain sailing on the economic front however. Mr Macri still has many challenges to confront, with Argentina’s economy mired in recession and facing double-digit annual inflation. The government in October proposed a higher-than-promised fiscal deficit in the 2017 budget and said nearly a third of Argentines live below the poverty line.

And with poverty in the country now starting to hit even harder owing to high inflation, as well as some concerns about Mr Macri’s ability to execute reforms speedily enough, the president’s initial honeymoon period is over and some serious challenges lay ahead.

Indeed, it is a problem faced by reformist governments all over the world: how to persuade the electorate as well as international investors to have patience until new, reformist policies begin to pay off. “Change is not easy,” admitted Marcos Peña, the President’s Chief of Cabinet, at the Argentina Business Investment Forum in September.

Change is particularly complicated in Argentina, where the Christina Fernández government left a number of unsound policies, such as massive energy subsidies, which Mr Macri has faced some trouble in trying to reverse.

Luckily for the president, and Argentina, investors for now are showing tolerance and understanding of the situation. The general feeling is that Mr Macri has another 12 months – until mid-term legislative elections next October – to show that he is deserving of investors’ trust.

Until then, Argentina is playing a political waiting game in the hope that its promises – namely that the economy will improve and things will get easier for the population – come to fruition.