The bad performance of the current president of Argentina, Macri, in the open primaries raises many doubts about the future of Argentina. Mostly about its economy and the relationship with foreign investors.

Argentina’s debt from the default in 2001 was only entirely settled in 2016. Although 100% of it has been paid, the prolonged restriction of access to international credit markets has made a mark on the Argentinian economy. After all, without the access to outside credit, Argentina’s economy didn’t have the monetary means necessary to finance development.

New debt ($56 billion loan from IMF) can also become a problem if Argentina will return to any financial policies implemented pre-Macri.

The current direction of enacted economic policies in Argentina has produced both quantitative and qualitative positive outcomes.

The sharpest turn for the better has been observed through the increase of labour wages in Argentina. Just at the start of Macri’s term, at the beginning of 2016, the average wage in Argentina was 17,500 pesos (in the private sector). In April of 2019, the average wage in Argentina had risen to 40,911 pesos per month. An almost 3 times rise in average wages is an important achievement, because of its power to contribute to better lives of consumers and to increase living standards.

Inflow of foreign investments has grown by 373.1% or $8.902B in 3 years. This rise in FDI net inflows shows just how much impact some simple legal changes and a welcoming environment can make to inflows of foreign capital. Foreign direct investments not only contribute to the gross domestic product numbers, but also bring know-how and create jobs. These positive impacts are very much needed for Argentina, which has been coping with record unemployment numbers.

President Macri has raised interest rates to lure foreign investments. The increase in interest rates was also initiated to get rid both of a high unemployment rate, and growing inflation numbers. The raised interest rates were supposed to take care of 3 problems through one action.

Higher interest rates have been successful in increasing sales of Argentina’s bonds. They have been less successful in reducing high unemployment and growing inflation.

In its basic form, Philips curve tells that there is a trade-off between unemployment and CPI (consumer price index). In the short run, higher unemployment leads to lower inflation, and vice versa. However, Argentina’s case seems to defy conventional economic theory: the higher interest rates did not manage to lower inflation, but the growing inflation did not contribute to lower unemployment. This situation leads to the conclusion that Argentina could have a problem with structural unemployment.

President Macri also emphasized austerity in his election campaign, and implemented some austerity-focused policies. These include reducing the number of ministries and contributions to social security. They have contributed to decreased government spending, but they have been unable to stave off the peso crisis.

Positive qualitative outcomes of the current president’s presidency include growing foreign investor confidence, fluctuating, but stable consumer confidence, and dismantled capital controls.

The current president of Argentina also worked to remove legal import barriers. The easing of legal procedures included standard information now only having to be submitted once, instead of separate submissions to all import-related agencies. Although this reduction in legal procedures only applies to large importing companies, it still is a step in the right direction. Moreover, 60 days have beet added to the deadline of customs document submission.

The removal of administrative barriers (paperwork for receiving dollars for pesos), and many forex-related restrictions, have been the actions taken to end currency controls in Argentina.

After M.Macri took office in 2016, the CCI of Argentina stayed stable until November of 2017. In December of 2017, the index experienced a sharp drop of 15.12%. However, after this sharp drop, the index rose quickly from May 2018 to May 2019. Although the CCI of Argentina fluctuated through Macri’s term, it has stayed mostly stable, and shown quick growth.

Dismantlement of capital controls was brought to life through the removal of import limits. Capital controls were also dismantled by ending the holding period (120 days) for repatriation of funds from Argentina (for foreign investors).

The positive qualitative outcomes achieved through the presidency of the member of the PRO show that Argentina has been put on path of freer trade and a better state for consumers.

But a closer look shows that these outcomes have been achieved only through the removal of older policies. The removal of previously instated policies has been a move which paid off. Yet, if own ideas were added from the side of Mauricio Macri, the positive qualitative outcomes could have been even better.

Without a doubt, there are many areas in the current state of Argentina’s economy that need improvement. The problematic areas include dependency on commodity prices and particularly, soybeans as a cash crop; and peso’s fall in value.

Lower commodities demand (and then prices), created weaker growth in Argentina. The decrease in demand for soybeans has been recognized by many as one of the most important factors in the start of Argentina’s economic downturn.

The return to a managed peso, and the subsequent devaluation of it, has prompted Argentina’s government to turn to IMF for support. Argentina got a $56 billion loan for the stabilisation of the peso–dollar exchange rate. The loan will also contribute to countering the depreciation of peso.

This move by Macri has been met with a very negative response from the Argentinian society. Protests followed, and the remembrance of the disastrous ending of a collaboration of IMF and Argentina in 2001 reignited old memories.

The International Monetary Fund’s and Argentina’s relationship is certainly complex and complicated. It’s the relationship which made Argentina default on its foreign debt, and contributed to growing poverty. The dissatisfaction of society with the outcomes of the relationship with IMF made itself known through the elections of two Justicialist (Peronist) presidents– Mr. and Mrs. Kirchners.

Argentina has also have been one of the countries censured by IMF after failing to provide reliable statistics on its economy.

Turning for help to the International Monetary Fund, at the first sing of hardship, shows just how easily the Argentinian economy can become destabilized by internal influences. The lack of other mechanisms for financial support during difficult times is a concerning problem.

Macri’s promise to reduce social spending didn’t materialize in his term. The promise to reduce social spending, which was raised by Kirchner, actually manifested itself in raised welfare benefits. After the recent defeat in primaries, Macri announced income tax cuts and increases in welfare subsidies.

Although not directly related to welfare spending, the temporary (90 days) freeze on petrol prices is in a way a welfare benefit. However, this decision also shows how the Argentinian government still prefers to take away from businesses, in order to please the consumers. Since petrol stations in Argentina are privately owned, this means that the freeze of petrol prices could lead to lower incomes of petrol station owners.

How would the most likely opponent of Macri (Fernandez) impact the Argentina’s economy and investors?

If Fernandez with his running mate, Kirchner, will get elected on October’s elections, it will mean a turn to moderate Peronist policies.

Poverty rates have only been minimally improved through the term of M.Macri. If Fernandez will get elected as a president of Argentina, his 4 year term could be marked with actions to decrease poverty and the number of people receiving welfare.

Relations with foreign investors will likely suffer the most damage if Fernandez will get elected in October (or November). His running mate, Kirchner, and her 8 year presidential term, has been marked with a decline in the positive treatment of foreign investors and their capital. Macri had to reverse many of Kirchner’s policies, including import limits and the holding period for repatriation of funds from Argentina.

Since Fernandez’s views on investor relations and foreign capital in Argentina are more pragmatic, it is only rational to expect a return to a milder version of anti-foreign capital environment.

If Fernandez will be able to assert his moderate Peronist position, then a more positive scenario could develop. Alberto Fernandez has criticised the former president Kristina Kirchner in the past. A more moderate position and the ability to see faults in the previous isolationist policies, could mean that the Argentina’s economy wouldn’t return to more extreme economic policies.

Support for free trade has been the main, and the most needed, step for a creating a strong and stable Argentina and its economy. The removal of taxes on exports and the decline of protectionist policies have been the strongest contribution to a more powerful economy of Argentina.

Yet, the support for free trade didn’t last long. President Macri later reimposed agricultural export taxes.

After the announcement of the victory of Fernandez in Argentina’s presidential primaries, Merval index lost 31% of its value in one day. Argentina’s largest companies saw their share values decrease.

This steep loss shows that Argentina’s economy is far from stable. Just the news from primary elections have the power to bring uncertainty into the markets. This means that Argentina’s economy experienced far less movement into stability and resilience from negative news, than it could be expected with the 4 year term of an austerity proponent. Unsolved past problems and inevitable future challenges can’t create a certain future.