Journey through the Argentine capital of Buenos Aires and you’ll still see buildings decorated with the glamorous image of actress Evita Peron, wife of former President Juan Peron, a politician who put his country on a trajectory of financial ruin through his expansionist tax and regulatory policies. Decades after Peron, his acolytes maintained their rule over Argentina more recently, throwing the country into economic brinkmanship during the past 12 years.
Sky-high inflation, price distortion, recession and sovereign default are among the problems facing a country whose outgoing president, Cristina Fernández de Kirchner, has drawn scrutiny for the mysterious death of an investigator looking into allegations that she conspired with Iran to cover up its alleged role in a 1994 terrorist attack on a Jewish community center that killed 85 people.
According to sovereign analysts at Moody’s Investors Service (in full disclosure, a former employer of mine), last year unofficial estimates place inflation as high as 40% a year (now closer to ~25%), and price controls and broad-based government interference have damaged investment prospects, particularly in the energy sector, where a lack of investment has led to a rise in energy imports, turning the country’s overall energy trade balance into a trade deficit. Official reserves have fallen to below $22 billion, raising uncertainty about the government’s ability to meet 2016 debt service obligations and adding pressure for a swift resolution with holdout creditors.
“The government’s inconsistent economic policy decisions and ongoing questions about the reliability of official statistics make it extremely difficult for anyone to determine with certainty what the country’s economic conditions really are,” Gabriel Torres, a Moody’s vice president, said last year.
However, this dismal scenario is poised for change in the coming years, and those Peron decorations just might come down. Last week, Argentinians elected Mauricio Macri, a pro-business leader promising sweeping reforms and unprecedented government transparency. Macri won the presidential race with 51.4% of the vote, a tight victory over Daniel Scioli, the ideological compatriot of de Kirchner.
President-elect Macri will take office on 10 December, becoming just the third non-Peronist Argentine President since 1983. Macri has made abundantly clear that his approach will represent a major market-friendly break from those observed during the last 12 years. Macri, currently mayor of Buenos Aires, faces the daunting prospect of how to restore faith in Argentina’s capital markets, which rejoiced at the news of his victory.
Moody’s last week also changed the outlook on Argentina to “positive” from stable, meaning that the country could be upgraded within the next couple years if Macri’s desired reforms bear fruit.
“The outlook change is based on Moody’s view that the accession of president-elect Mauricio Macri of the Cambiemos (‘Let’s Change’) coalition will raise the probability of credit positive policies being implemented, including arriving at a resolution with holdout creditors, one of Argentina’s key credit constraints,” Moody’s said.
What that could mean for the average Argentine is that she will be better able to compete in the global marketplace. She will be able to go to the grocery store and purchase basic home goods without fear of supplies running low due to price controls and disrupted supply chains.
Macri has also said he would also courageously sever his predecessors’ cozy ties with the leftist Venezuelan regime and seek to suspend Venezuela from the South American trade bloc Mercosur because of its human rights violations and limits on free speech.
“To the brothers of Latin America and the whole world, we want to have a good relationship with all the countries,” Mr. Macri said in his victory speech. “The Argentine people have much to offer to the world.”
With tremendous potential to bring his country roaring back to life, Macri has been cheered on by free-market conservatives around the world.
“Today is a historic day,” Macri also said during his acceptance speech. “We need to build an Argentina with zero poverty. A marvelous phase is beginning for Argentina.”
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Carrie Sheffield is the founder of Bold. She is passionate about storytelling to empower and connect others. A founding POLITICO reporter, Carrie contributed on political economy at Forbes and wrote editorials for The Washington Times. After earning a master’s in public policy from Harvard University, she managed credit risk at Goldman Sachs and researched for Edward Conard, Bain Capital founding partner and American Enterprise Institute scholar. She earned a B.A. in communications at Brigham Young University and completed a Fulbright fellowship in Berlin.