Too little, too late?
A major reason why people have been protesting the government’s economic policies in Argentina (ARGT) is the time it is taking for them to show results. When Mauricio Macri had become President in December 2015, he had promised citizens that the negative repercussions of his policies would be over by the second half of 2016.
That has clearly not been the case. Though economic growth has improved, and the government’s foreign exchange reserves have increased, Argentina has barely exited a recession and inflation continues to pinch the pockets of consumers.
The country’s gross domestic product showed economic growth rose by 0.5% in Q4 2016 after having emerged from recession in the previous quarter. However, economic output fell by 0.5% from December 2016 to January 2017. This shows that a sustainable recovery is yet to take hold.
Impact of policies on importers
To provide an instance of how well-intentioned policies have had a negative impact, according to a report by Reuters, the Macri administration had increased the number of goods which require import licenses to 1,628, up over 2.5 times the number in the earlier government.
This has become a big hassle for importers in Argentina, as in the current scheme of things, they need government clearance to bring imported goods into the country. Due to this, they need to go to court to release goods stuck at customs.
A promise of trade liberalization has also created problems for manufacturers who state that they would be unable to remain competitive in the face of an increase in imported goods.
This example shows the difficult situation the government is in. While attempting to open up the economy, it is finding it extremely difficult to ensure job safety and is experiencing large scale backlashes due to the moves being unpopular.
Better late than never?
If we look at the reforms from the perspective of international investors, the moves are excellent even though they’re causing short-term pain.
The Macri government will have a referendum of sorts on their policies during legislative elections in October this year. However, the unpopularity of his moves have led to strikes by labor unions – this government’s first – and demand for higher wages in order to compensate for high inflation. This has also negatively impacted his approval ratings.
In case people decide to vote against the present government, it will make Macri’s path to push through further reforms much more difficult and will also test his ability, intent, and belief in the adage ‘better late than never’ to continue on this path even in face of backlash.
In the next article, let’s see whether these developments can impact Argentina as an investment destination.
