After only one week in the top job, Argentine President Mauricio Macri has passed drastic economic reforms, drawing praise from foreign investors but angry protests from citizens afraid for their salaries.
The so-called “Macri-economic” shock treatment in Latin America’s third-biggest economy saw the Argentine peso plunge by a third after he scrapped his leftist predecessor’s dollar exchange controls.
That was an even sharper fall than during Argentina’s financial crisis in 2002, when it had to be bailed out by the IMF.
Photo: AP
A sharp adjustment is needed to make the country competitive, Macri said, but economists and his political opponents argue that it will hurt Argentines’ purchasing power in the medium term.
“There is a sense of relaxation, aside from the critical economic situation,” political analyst Gustavo Cordoba said. “One week into its term, the government’s record is very positive.”
However, cheaper pesos mean ordinary Argentines will be able to buy less.
Labor unions demanded the government give vouchers for workers at Christmas to compensate for having their spending power slashed by the currency reforms and by soaring inflation.
Small domestic producers have also warned that freeing up exports and imports will drive them out of business.
“We will have to wait and see what measures the government takes to stop people’s salaries evaporating and more marginal sectors being impacted,” Cordoba said.
The currency reform was the most dramatic of Macri’s measures since taking office on Dec. 10.
He has also axed a controversial tax on agricultural exports including grain and meat and he lowered the tax on soybeans — another major export.
“We are racing against the clock. We have no time to lose,” he said. “The world doesn’t give out presents and neither do we. This is an incentive for investment and innovation.”
Argentina is the world’s third-largest soybean producer. The freeing up of farmers’ stockpiles raised fears on world markets that they would be flooded with cheap Argentine produce. European grain prices fell after Macri’s announcement.
However, exporters welcomed the agriculture reform. Farmers called them a historic move that could lead them to sow 30 percent more wheat and corn next year.
Meanwhile, the free floating of the currency is likely to boost Argentine exports further by making them cheaper.
“By lifting capital controls and devaluing the currency, the new administration will have tackled the most obvious distortion in Argentina’s macro-policy framework,” Capital Economics analyst Neil Shearing wrote in a note. “The economic benefits, however, may not materialize until well into next year.”
Argentine stock prices plunged by more than 4 percent on Friday. They were down by 10 percent overall on the week.
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