January 21, 2018


Argentina's gamble on economic gradualism is working, so far (The Economist, Jan 18th 2018)

Mr Macri promised to open up Argentina's isolated economy and end controls imposed by his populist predecessors, Cristina Fernández de Kirchner and her husband, Néstor Kirchner, who governed for nearly 13 years between them. Under Mr Macri, Guapaletas has better access to credit, says Mr Manzuoli. A new online platform, Export Easy, makes it simpler to get export licences. Guapaletas started selling through three shops in Argentina and has now expanded to 69. It plans to start exporting to Chile, Colombia, Paraguay and Uruguay in March.

But Mr Manzuoli's confidence is tinged with unease. Mr Macri's reforms have run into resistance. A protest against his plans to reduce spending on pensions led to the firing of tear gas and rubber bullets and tied up traffic in Buenos Aires on December 14th, delaying deliveries by two lolly-laden lorries. After a fast start, Mr Macri has slowed the pace of reforms. If he cannot finish the job, Mr Manzuoli fears, Argentina's economy will not prosper.

After taking office in December 2015, Mr Macri floated the peso, scrapped most taxes on exports and reduced energy and transport subsidies in an effort to restrain a rising budget deficit (see chart). He introduced targets for public borrowing, settled a long-running dispute with foreign creditors, which restored Argentina's access to international capital markets, and gave his blessing to inflation targeting by the central bank.

The economy is now moving in the right direction. It has recovered from a recession that began in 2015 and is expected to grow 2.5% this year. Inflation has fallen by more than a third from its peak of around 40% in July 2016. The IMF predicts that the primary budget deficit (excluding interest payments on debt) will shrink from 4.8% of GDP in 2016 to 1.9% by 2020.

Last October, Cambiemos, Mr Macri's party, won a decisive victory in legislative elections, giving the government the courage to continue reforms, albeit at a cautious pace.

Posted by at January 21, 2018 8:24 AM