Introduction

I taught for a few years at The University of Palermo in Argentina. My sense was that Cristina Fernández de Kirchner had made numerous economic mistakes and things would not get better until she was replaced. That happened in December with the election of Mauricio Macri. Macri, a civil engineer and former “chief” of Buenos Aires, is the first democratically-elected non-radical/Peronist President since 1916.

The Kirchners portrayed themselves as the saviors of the poor while enriching themselves and their supporters while in power. Will Macri be better? He is certainly off to a good start. He has:

And even the IMF that earlier condemned Kirchner’s falsifying of economic data is starting to sound positive. IMF head Christine Lagarde recently said:

“Well, first on the negotiations, we are very encouraged to see that Argentina, and its new leadership, has taken the initiative to enter into negotiations with Argentina creditors. It’s been weighing on the country. And it will be a real plus if it results in a fair and balanced outcome. That would support Argentina returning to the financial markets and restoring its financial position. The macroeconomic policies that are currently identified by the new team and the new authorities in Argentina are very encouraging. And we hope that it will stabilize the Argentinean economy. We hope that, in particular, the determination for transparent data – the statistical emergency that has been declared by the Argentinean authorities – all of that is good. And we really support it.”

This all sounds impressive but the Kirchner “residue” and the resulting skepticism about any Argentine government will be difficult to overcome.

Some of the Kirchner Legacy

In my last piece on Argentina, I listed several major “problems” under Kirchner:

To discuss these and other matters affecting the future, I have asked a friend who lives in Buenos Aires to comment on these matters. Hendrik Jordaan (HJ) is the founder of Laurick International, a company that he started to promote business relations and interactions between Argentina and South Africa. His thoughts on these issues follow along with my questions/observations (EM).

1. Intimidation

HJ: ?The intimidation under the Kirchner governments was masked as support for “The Model”. “The Model” proponents claimed it protected the poor and the disenfranchised. ? ?It reached epic proportions during the last part of Cristina Fernandez de Kirchner’s government. In a sense, intimidation might have cost the Kirchner forces the election as the most intimidated person was probably their candidate, Daniel Scioli. Scioli was not allowed/did not dare to show independent thought or ideas that were different from “The Model”. So far under the Macri government there has been no intimidation or censorship. But the Kirchner supporters are crying foul whenever Macri closes a sector, department or dependency that was used to propagate “The Model”.

2. Falsifying Government Data

HJ: This is probably the biggest legacy of the 12 year Kirchner era. Nobody knew what was real and what was just propaganda. With an inflation rate somewhere between 20% and 30% per year, businesses and consumers did what they had to. Nobody knew the true relationship between prices and salaries. Critical data that was falsified or simply not reported included: inflation, unemployment, poverty, central bank reserves, houses built, access to basic services, health indicators such as malnutrition and poverty-related diseases such as “chagas”. Macri’s government now has the unenviable task of salvaging what is possible from this and having to present it to Argentine society and the world. And of course, the die hard-Kirchner fanatics and opportunistic opposition politicians will take advantage of the readjusted and reprocessed data to blame Macri for things that happened under the Kirchners and argue that he is only governing for the benefit of rich businessmen.

3. Efforts to Keep the Peso Strong

?HJ: This was probably the biggest economic blunder of the Kirchner government. Because of the many historic economic crisis (almost always due to government mismanagement) Argentines prefer to hold their cash in dollars rather than pesos. So to be told they could not hold dollars created a mass hysteria and made it a conversation topic for everyone from the housewife through to the greengrocer up to presidents of multinational companies.

In these circumstances, it was inevitable that a black market for dollars would develop. The black market dollar price “Blue Rate” was created. And at times, it exceeded the official rate by almost 70% but always by more than 50%. The government claimed this was a negligible market. Not true. And it gave the people a sense of what their Dollars and Pesos were “really” worth: people acted and planned accordingly.

Had the government established a higher threshold so that the man on the street could buy, say, US$100,000 per year at the official rate, it would have made it a non-issue and would only have caused a minor dent in an already depleted foreign currency reserve of the Central Bank. With the fictitious but official exchange rate of 9 pesos to the US$ the government unbalanced the whole economy and caused a feeling of panic in the market. I call it fictitious because it was a rate that was almost impossible to buy Dollars at and clearly nobody willingly sold you private Dollars at that rate.

The exporters’ ?plight was severe. They got paid whatever the global price was in dollars. They then had to give up their dollars in exchange for Pesos at the official 9 Pesos per dollar rate. And on top of that, they had to pay an export tax the Kirchner had introduced.

Macri went a long way to solving this by making sure that there was a safe minimum of liquid reserves in the Central Bank and then allowing the Peso to float at a rate of 13.50-14 to the US$. He then announced that citizens could buy up to US$2 million per month. This calmed everybody to such an extent that although the Peso currently trades at 15.20 to the dollar and the black market rate is now virtually the same as the official rate (nobody talks about it anymore).

4. Rampant Corruption

?HJ: Corruption reached epic proportions at the end of the Kirchner era with the increase of the President’s declared fortune having increase somewhere in the order of 500% during her time in office and having pro-government judges closing cases against her illegal enrichment three times before the investigations could start. There are many other examples and many others that will be confirmed by the soon-to-be revitalized justice system.

President-elect Mauricio Macri has presented all the members of his future cabinet and said one of his requests to the team was “honesty”. He added he “will be very strict and have no tolerance” with corruption acts. “There won’t be impunity or exceptions for anyone,” he added.

However, the Argentine former opposition will have to face the courts after a criminal complaint was filed against President Macri, the current mayor of Buenos Aires, and four top officials from the city government. According to the complaint – filed by lawyer and businessman Antonio Liurgo – the accused misappropriated public funds to the detriment of the city. Furthermore, Radio Ahijuna also presented a criminal complaint against Buenos Aires’ media and communication secretaries. Other radio stations are considering joining the plaintiffs. The complaint comes after seven media outlets rejected official data published by Macri’s Buenos Aires government on its website, claiming that the amount the mayor’s office reports it paid for advertising is much higher than the fee they charged. Some of the media claim they didn’t receive any money. They claim a government intermediary was responsible for making the payments, which could amount to over US$745,000 dollars.