Argentina’s upcoming October 2015 elections are getting a lot of attention because in one form or another, it means the end to Kirchnerism, at least in its current form. Indeed outside investors have continued to hold and demand Argentine debt under the assumption that once President Cristina Fernández de Kirchner goes, her replacement will settle with the holdout “vultures” and normality will once again reign in South America’s second largest economy.
To those of us who either live here or deal actively with Argentina on a business level, we understand the reality that Argentina elections and the end of Cristina will not automatically usher in an era of prosperity. Moreover, many of the policies of Kirchnerism will be complicated and politically costly to untangle. Whoever takes the helm in December will have to decide which problems to tackle (if at all), and in what order.
For his website Carta Financiera, Argentine Economist Miguel Angel Boggiano created a chart to visually describe the key areas that both candidates will have to address, and the realities they would each face were they to win the Argentina elections.
In a nutshell, Boggiano goes through the following important areas that must be addressed to essentially undo the culture of consumption and government spending created by Kirchner, and revive the economy through savings and investment:
- Get rid of the blue dollar and foreign exchange controls mess
- The holdout “vultures” and the IMF
- Subsidies and the distortion of relative prices
- High government spending
- Export taxes
While I think he should have also included and specifically addressed import controls as well, they are a direct result of foreign exchange controls so they are indirectly covered.
The bottom line of his analysis is that Scioli will continue some of the serious flaws of the Kirchner government, albeit with changes that would slowly undo some severe economic distortions. And while Macri promises to make bigger changes, each change will be more difficult and costly due to congressional and judicial opposition. He may promise to quickly dismantle these problems, but politically speaking he may be in a weaker position than his opponent to actually do so.
The economic elements of his comparison are presented in the chart below.
Chart adapted from Michael Angel Boggiano, CartaFinanciera.com
Regardless of who takes office, we won’t see the positive effects of any changes until at least the second half of 2016. The negative effects will be felt immediately, which could erode public support for Macri. And it will be politically painful for the man seen as responsible for increasing the cost of living via the removal of subsidies to electricity, transportation, food, and other consumable goods.
It’s easy to talk about wanting to remove unsustainable subsidies, but much harder to put your money where your mouth is. Especially if that money suddenly buys far less food.