11 December 2015

Can the Right save Argentina?


Yesterday, for the first time in nearly fifteen years, the potent political force that has so dominated Argentinian politics for decades will not be sworn into the Presidency. For only the third time since the 1940s, Peronism has been defeated at the ballot box.

The election of the centre-right Mauricio Macri to the Presidency is a potential upset to a long set narrative of national decline. His pro-business stance and more liberal economic policy has been lauded. However, that the Right can save Argentina is far from certain.

Despite the narrative of decline, not all is lost for the average Argentine. The mantra of equality and social justice may have been subverted by poor economic policy, cronyism, and autocracy, but Peronism has not been universally bad for Argentina. The Prosperity Index shows that Argentina ranks 47th globally for prosperity, higher than would be suggested by its relative wealth.

So too does it over-perform in both health (45th) and education (40th), where it has been improving. Argentina is now 13th globally for the number of people who continue education beyond secondary school. At 80%, it sits well ahead of the UK and Germany who languish at 61%. Kirchner has not sunk her country, Argentina sits at the same rank for national prosperity as it did in 2009.

Yet this static performance masks the hidden cost of Kirchner for Argentinian prosperity. In three key areas it has experienced a sharp and rapid decline. Together they represent natural territory for the Right, but still pose a significant challenge for any incoming President.

For anyone familiar with the case of the suspicious death of prosecutor Alberto Nisman, found dead a day before he was due to testify about a cover up that reached the door of the Presidency, it will come as no surprise that Argentina’s governance structures are in crisis. The Index has recorded a 29 rank fall for governance in the last four years alone. At just 104th globally, the decline has been marked by the erosion of the rule of law, growing hostility towards the private sector, and the belief held by over 3 in 4 Argentinians that corruption is widespread.

This erosion of property rights and rise of cronyism has not only had an effect on the quality of governance in Argentina, it has been particularly devastating for the economy and entrepreneurial environment. In a country as centralised as Argentina, with state intervention in almost every sector, the distortions created by poor governance have a devastating economic impact. Only last year, restrictions on imports, increased subsidies, and controls on private sector output saw businesses fold, shelves left empty, and workers laid off.

It is unsurprising then, given this centralism and interventionism, that Kirchner presided over a near 20 rank fall for Argentina’s economy in the Index during her last term. Recession, rampant inflation, and falling employment has killed economic optimism. As Kirchner was last sworn into the Presidency, nearly 60% of Argentinians felt it a good time to find a job. Today that is just 34%. In the same period, entrepreneurship has been neutered by a 50% increase in start-up costs, making them among the highest in the developed world. Unsurprisingly, the Index captures an 11 rank fall for Entrepreneurship and Opportunity since 2009. The reality of Kirchner’s last term is a country where living standards are falling. 76% were satisfied with living standards in 2011, today that has fallen to just under 70%. Alongside it, Argentina’s belief in hard work and opportunity is also on the wane.

Thus as Mauricio Macri, President-Elect and leader of centre-right party Republican Proposal, takes office, there is hope for Argentina. The heavy dose of economic liberalism needed to secure Argentinian prosperity is the Right’s natural territory. The question is, can Macri do enough?

His initial ambitions indicate that he is at least prepared to try. A commitment to improving the business environment, lowering inflation, and a desire to end currency controls show an understanding that the economy is at the centre of Argentina’s problems. His choice of Brazil – Argentina’s main commercial partner –  as his first official visit gives a positive indication on his commitment to free trade, particularly given the discussions on the Pacific Alliance trading bloc and a Mercosur-EU trade agreement.

Macri’s thoughts on driving regional economic growth are not dissimilar to George Osborne’s: invest in infrastructure.  His infrastructure plan, the ‘Plan Belgrano’, to invest around $16bn over the next decade to improve infrastructure in the northern provinces of Argentina, and to stimulate industry development, is an important step in building a less centralised, more economically balanced state.

However, Argentina’s resurrection at the hands of the Right is by no means assured. The theory may be positive, but the reality will be far harder. The Index shows how Argentina’s economic decline is interwoven with governance problems. These problems are not simply a result of the mere neglect of institutions, but their systematic dismantling. This will be extremely difficult to reverse.

So too does Macri face political problems. ‘Centre-right’ in Argentina is more akin to ‘social democrat’, more New Labour than Conservative. But even so, Macri leads a coalition – Cambiemos – of parties, one that he, even as a social democrat, on the right of. He may have a commitment to the strengthening of property rights and market liberalisation, but this is not necessarily universal. Yet that may prove the least of Macri’s problems. Cambiemos are the minority in both the Chamber of Deputies and the Senate, where the Peronist bloc still controls the floor.

Ultimately, given the scale of the challenge, much will rest on whether this election is a decisive break with Peronism, or simply a temporary rejection of the populism of the Kirchner era. Reform of the magnitude required is not attainable in a single term. The Right may be able to save Argentina in theory. In practice, it will likely prove a far more insurmountable challenge.

Harriet Maltby is the Government & Economic Policy Researcher at the Legatum Institute.