After Kirchner: Will Argentina Seize Chance to Correct Course?
By Jason Marczak, April 28, 2015, Briefing
After a 12-year run, Kirchnerismo is nearing its end in Argentina. The next president, who will assume office in December after general elections in October, will inherit a country ready for a course correction—if not a complete change. There is no easy fix to the many ingrained political, economic and social problems that have befallen Argentina over the course of President Cristina Fernandez de Kirchner’s eight years in power, which followed the four-year presidency of her late husband, Nestor Kirchner. Still, great promise is the age-old tale in Argentina, and by putting a few key policies in place, the next administration has a chance to revive domestic and international optimism about the country’s economic potential.
Argentina today is often an afterthought for investors looking at opportunities across emerging markets—a remarkable shift from Nestor Kirchner’s term, when commodity prices were high and economic growth averaged 9 percent annually. That turnaround came only two years after the country’s long-simmering financial crisis erupted into full-blown disaster, resulting in capital controls and Argentina’s sovereign debt default in December 2001.
As Cristina Kirchner’s term now draws to a close, the Argentine economy has once again run out of steam. The International Monetary Fund (IMF) predicts that the economy will contract by 0.3 percent in 2015 and grow by only 0.1 percent next year. Inflation is projected to top 18 percent this year and to edge up 4 more percentage points in 2016, giving Argentina the dubious distinction of being among the world’s top-five inflationary economies. Add in ever-higher rates of unemployment, currency depreciation and, of course, the fact that the country is still technically in default, and it’s no wonder that Kirchner is globetrotting looking for fast cash.
She was in Moscow last week, on one of her final trips as president, to sign $3 billion in energy deals. In February, she traveled to Beijing to sign a nearly $7 billion deal to finance the construction of two hydroelectric dams and a railway. Kirchner has few other options for infusing cash into Argentina’s dollar-starved economy, which is effectively shut out from traditional sources of funding and investment.
But China and Russia, often considered lenders of last resort, will not be the answers to reviving Argentina’s languishing economy, no matter how much money they promise. Economic growth clearly requires foreign direct investment, but that only comes when private investors have confidence in the rules of the game. Under Kirchner, that has been marginal at best, with the nationalization in 2012 of the country’s biggest oil company, YPF, just one example of a policy climate that has investors skittish. Although Kirchner’s government took steps in the past few years to reassure potential investors, they were not enough to hide that Argentina is more fragmented than at any time in recent history. Beyond threats to business, the past few years have been marked by the government’s near-constant state of conflict with the media, the judiciary and the opposition.
Still, one thing Kirchner has going for her is resilience. She floundered in her response to the death of special prosecutor Alberto Nisman in January, who was on the cusp of accusing her of colluding with Iran to cover up the 1994 bombing of the Buenos Aires Jewish Center, known by its Spanish acronym, AMIA. But after the conspiracy accusations that swirled around her lowered her approval ratings by approximately 10 percentage points, she improbably bounced back to a 36 percent approval rating in March—her highest mark in 16 months. After the chief prosecutor in the country’s highest court dismissed Nisman’s case last week, the saga appears to be over. Now, with seven months left in office and this crisis behind her, Kirchner is likely to be anything but a lame duck as the Oct. 25 presidential election approaches.
Kirchner also remains influential within the Peronist Party, which complicates matters for Daniel Scioli, the governor of Buenos Aires province and one of the three leading presidential candidates. Scioli, who is already positioning himself as the next party leader, is not Kirchner’s first choice to carry the party banner into the October election, and he will be forced to secure her support in advance of the party’s August primary. An open split between the two would exacerbate existing intraparty tensions between Kirchner’s core supporters and the traditional Peronists who support Scioli.
The other two serious contenders, Buenos Aires City Mayor Mauricio Macri and Congressman Sergio Massa, will each seek to incarnate the alternative to Scioli, the Peronism standard-bearer. That’s an uphill battle, and not only because they both currently lag behind Scioli in Argentina’s notoriously fluid polls. Macri, who represents the furthest break with Kirchnerismo with his center-right PRO Party, will need the support of the Radical Civic Union (UCR), a liberal socialist party, to give him the foot soldiers he needs in the campaign. But he’s so far been tepid on accepting the UCR offer of an outright electoral alliance, insisting instead that the UCR follow his party’s lead. Meanwhile, Massa, the most centrist candidate, is well-positioned to implement the greatest number of badly needed economic and political reforms, but his moderate position has also made it difficult to attract passionate supporters.
All three would likely usher in a new era of greater transparency, increased respect for the rule of law, a more open media climate and improved relations with the United States should they take office on Dec. 10. Economically, the next administration will likely put in place policies to loosen capital controls, rein in inflation and find a deal with holdout creditors so Argentina can finally emerge from its default.
In other words, after years of looking to Venezuela as an economic model, Argentina is poised to make the Uruguayan model—and, before it stumbled, the Brazilian model—of socially progressive policies supported by relatively sound economic management its new look over the next few years.
Scioli represents continuity and Macri more radical reform, with Massa in the middle. And Kirchner will certainly attempt to meddle once out of office. But no matter who wins, Argentina is on the cusp of once again rolling out the welcome mat to the broader international community.
Jason Marczak is deputy director of the Atlantic Council’s Adrienne Arsht Latin America Center.
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