Tough challenges await new Argentinian president

In a historic political shift, Argentina has elected a right-wing politician as president for the first time in its history.

Mauricio Macri defeated populist Peronist candidate Daniel Scioli by just under three percentage points in Sunday's run-off vote to cap the emergence of a democratic, electorally successful right in a country where conservatives have historically relied on the military to wield power.

“Today is a historic day, this is an epochal change,” he told jubilant supporters at a rally after his lead became unassailable.

Victory for the 56-year-old mayor of Buenos Aires brings to an end 12 years of rule by the Kirchner family and represents a parting defeat for outgoing president Cristina Fernández de Kirchner, whose highly personal and often paranoid ruling style prevented the emergence of a credible successor from within the Peronist movement.

Though frequently humiliated by the president’s inner circle, who viewed him as too moderate, Scioli’s campaign was dogged by its failure to decide if he represented continuity or the clear break with “kirchnerismo” that more than 60 per cent of Argentinians voted for in last month’s first round. The outgoing governor of Buenos Aires province notably failed to thank Fernández in his concession speech.

Commodity boom

Due to be sworn in on December 10th, president-elect Macri now faces daunting challenges. Fernández has squandered the fruits of last decade’s commodity-driven economic expansion and the country is once again mired in recession and running out of cash.

Huge foreign reserves built up during the commodity boom have been frittered away on populist policies, and a growing fiscal deficit is increasingly being covered by printing pesos. That in turn is fuelling inflation which, at about 28 per cent, is eroding the purchasing power of workers.

In order to return the economy to growth, the new president has promised to attract investors scared off by the heavy-handed policy interventions of the Fernández years. If he is to tackle the deficit, he will likely be forced to unwind unaffordable subsidies for fuel and transport. A devaluation of the overvalued currency is also considered inevitable.

Such moves would be unpopular and produce a spike of inflation in the short term, with some analysts predicting it could peak at 40 per cent next year before receding.

One of the main items on his agenda will be how to resolve the standoff with bondholders who rejected a debt restructuring deal in 2005 following Argentina’s historic 2001 default. These so-called holdouts have waged a bitter legal battle in a US court that prevents the country returning to global capital markets almost 14 years after the default.

Fernández elevated the dispute against the holdouts into a national cause, and her more radical supporters would bitterly oppose any compromise. But if Macri cannot quickly reach a settlement, the country’s inability to tap financing will limit the ability of his incoming administration to ameliorate the impact of any economic readjustment, despite Argentina’s relatively low debt-to-GDP ratio.

Political weakness

Despite Sunday’s historic victory the new president must tackle these economic challenges from a position of relative political weakness. A majority of the country’s provinces are still controlled by Peronism, as is the senate, while Macri’s coalition lacks a majority in the fractious lower house of congress.

That represents a significant challenge in a country where for decades non-Peronists have had severe difficulty turning victory at the ballot box into real power. Not since Marcelo Torcuato de Alvear in 1928 has a democratically elected non-Peronist president served a full term. The last two were chased from office by angry crowds in 1989 and 2001 after they failed to win cross-party support to deal with economic crises.

But Macri has long-standing links with moderate Peronist leaders and in his victory speech clearly signalled to non-kirchnerista elements within the country’s biggest political movement that he is open to working with them.

“Change cannot be held up by revenge or score-settling,” he told supporters after a campaign during which he proposed a cross-party “governability pact” for tackling Argentina’s problems.

The end of the Fernández era is also likely to have wider regional ramifications. The increasingly isolated chavista regime in Venezuela will lose one of its closest allies when Fernández steps down next month. But Macri's victory holds out the hope of a revival of relations with Brazil, strained by Fernández's arbitrary imposition of barriers to Brazilian imports in defiance of the rules of the regional Mercosur trade bloc.

Having been reduced to a moribund talking-shop in recent years due to Fernández’s protectionist stance, Brazilian policymakers have quietly expressed the hope that the end of her eight years in power will lead to a revival of the bloc, allowing it to finally conclude a trade deal with the EU.