On Sunday, conservative opposition candidate Mauricio Macri won the country’s first-ever presidential runoff election after months of campaigning for reforms to boost the country’s troubled economy. Macri, the 56-year-old mayor of Buenos Aires, defeated leftist ruling party candidate Daniel Sicolli to end more than a decade of Peronist rule.
Macri and his ‘Let’s Change’ (Cambiemos) campaign has achieved what no party has in Argentina’s political history: victory in the city of Buenos Aires, the Buenos Aires province and the nation states.
He received overwhelming support along the ‘Pampa’ plains, a wide geographical region that spreads from the Atlantic Ocean westwards to the Andes mountain chain. This area encompasses the majority of the country’s fertile land, along with five of its largest industrial power mill cities. Together, it comprises over 60% of Argentina’s population and generates almost 70% of the country’s GDP.
Argentina has a low external debt-to-GDP ratio, hitting just below the 25% mark. Since its notorious 100 billion USD default in 2001, the country has struggled to gain market trust and access to foreign credit. Risk-taking venture capitals have acquired 7% of the defaulted debt over the last decade.
Under President Cristina Kirchner’s administration, the Argentine economy suffered enormously with virtually no growth over the last four years. The country has experienced a severe shortage of foreign reserves due to diverging exchange rates between the Argentine peso and the ‘blue dollar’ rate.
With a 7% public deficit (equal to 45 billion USD), Argentina is about to conclude its worst fiscal performance in more than six decades. The self-financing scheme in which the National Government borrows from the Pension Funds and the Central Bank can no longer be sustained. As a result, Macri will face two major challenges: a reduction in public spending and a profound restructuration of the internal public debt.
To add to these challenges, the Central Bank Reserves are at an all-time low from 12% in 2013 to less than 2% today. Given the fact that the state has depleted these funds, Macri may have to seek external credit sources in order to alleviate the country’s domestic debt. Around 15-20 billion USD is believed to be necessary to keep the state afloat at its current spending rate.
Macri’s vision for Argentina:
Macri’s victory and vision for Argentina has generated market euphoria both nationally and internationally. Bond credit rating business Moody’s Investors Service recently updated the outlook of Argentina’s debt from ‘stable’ to ‘positive’, opening up the possibility of improving the debt-grade qualifications if a settlement is achieved and a credible fiscal reform is implemented.
The road is long and fraught with challenges for Argentina’s next president, but he has urged the country’s citizens to “not leave him alone” and be patient in bringing about reform in light of the nation’s troubled economic past.