Matias Vernego: Neoliberalism Resurgent: What to Expect in Argentina after Macri’s Victory

By Matias Vernego, Associate Professor, Department of Economics, Bucknell University, and author of the blog Naked Keynesianism. Cross-posted from Triple Crisis.

The election of businessman Mauricio Macri to the presidency in Argentina signals a rightward turn in the country and, perhaps, in South America more generally. Macri, the candidate of the right-wing Compromiso para el cambio (Commitment to Change) party, defeated Buenos Aires province governor Daniel Scioli (the Peronist party candidate) in November’s runoff election, by less than 3% of the vote.

Macri is the wealthy scion an Italian immigrant family that made its money on the basis of government contracts. He went on to work for the family business and later, defying his father’s wishes, became president of the most popular professional soccer club in the country, Boca Juniors. In 2007, he won election as mayor of the capital city, Buenos Aires—the springboard for his eventual election to the presidency.
This is a momentous change in Argentina’s history, since it is the first time that a right-wing party has won the presidency by electoral means. In the past, conservatives had only gained power through military coups or by disguising neoliberal policies under more progressive electoral promises and the mantle of a left-of-center party—as in Carlos Menem’s Peronist government in the 1990s.

Macri’s economic team includes among its most prominent members Alfonso Prat-Gay, an ex-president of the country’s Central Bank who also worked for JP Morgan Chase. He will be the next finance minister. Federico Sturzenegger, secretary of economic policy in the Economics Ministry under infamous finance minister Domingo Cavallo—author of the main economic policies of the 1990s—is likely to be the next Central Bank president. In other words, the economic team clearly signals a return to the market-friendly policies of the 1990s. This is also true on the foreign policy front, were Macri has already announced that he intends to use the so-called “democratic clause” of the Common Market of the South (Mercosur), the regional trade agreement, to exclude Venezuela for alleged violations of democratic norms. (Macri has backed off that plan since the victory of the right-wing coalition in Venezuela’s recent parliamentary elections.) He has also signaled a closer alignment with the United States.

The economic program of the new administration is quite clear, even though Macri tried to hide his economic advisors before the election, to reduce the impact of their unpopular views at the polls. They will unify the foreign exchange market, in which there is currently a large gap between the official and black-market exchange rates. This implies a “maxi-devaluation” of the peso, from around nine to about 15 pesos to the dollar (assuming that the current black market level is their desired nominal exchange rate). The effects of a depreciation of this magnitude will be massive.

In contrast to previous devaluations—most recently in 2002, after more than ten years of a fixed one-to-one peso-to-dollar exchange rate under Cavallo’s so-called “Convertibility Plan”—this one is not caused by an external crisis. While it is true that Argentina’s current account balance is negative, and that its reserves are relatively low, there is no significant danger that Argentina will default on its external debt now.

The current account deficit is not big, by historical standards or in comparison to other countries in the region, and international reserves can cover the country’s immediate obligations. Besides, under current conditions, with low international interest rates, it would be relatively easy to attract capital flows with higher interest rates, and borrow in international markets. (That would certainly be easier if Argentina could finalize an agreement with the so-called “vulture funds,” the holdout bondholders that did not agree to the rescheduling of debt after the last default.) And, if anything, Macri’s (unnecessary) promise to give in to all the vulture funds’ demands and rapprochement with the United States and International Monetary Fund (IMF) would resolve any short-run problems in financing the current account deficit.

The question, then, is why the Macri government would promote a huge depreciation of the currency with no clear external crisis on the horizon. The notion that the depreciation would solve the current account deficits is fraught with problems. Not only is the external situation not dire—so depreciation would be a “solution” to a non-existent problem—but there is also no evidence that exports will boom after a depreciation. Exports respond more to the growth of the global economy than to a change in relative prices. So for example, China will not demand significantly more soybeans from Argentina, as a result of lower prices, if the Chinese economy is not growing faster.

Actually, the only significant way in which the depreciation will reduce the external problems of Argentina is by causing a recession. Depreciations tend to reduce real wages, since the increase in the price of imported goods leads to inflation, which is not fully recovered by workers. As a result, consumption declines, with a negative impact on economic growth. Macri and his economic team have been very explicit about the need for a huge devaluation and the closing of the gap between the official and the black-market (or “blue,” as it is known in Argentina) exchange rate. This has already triggered an inflationary surge, as noted by the outgoing Economics Minister Axel Kiciloff.
The reason for the devaluation is precisely to cause inflation and a recession, both of which would weaken working-class bargaining power and, as a result, lead to lower real wages. And that is the ultimate goal of the new Macri administration. He has explicitly said so, in one of the videos that his campaign tried to suppress. The video shows him suggesting that the way out of the problems of the 1990s—when devaluation was not an option due to the Convertibility Plan—was to reduce real wages to increase external competitiveness. The maxi-devaluation of the peso will most likely be accompanied by a “fiscal adjustment plan” or, simply put, austerity. This would push the economy further into recession, reducing the bargaining power of workers even more.

Some skeptics suggest that Macri cannot pursue the classic IMF economic package of devaluation and fiscal adjustment, since that would bring about both inflation and recession, a politically explosive combination. However, the administration will deflect political problems caused by the economic crisis that these policies will trigger by suggesting that both inflation and the recession are the results of the negative legacy of twelve years of “populism” under the previous two administrations. In fact, Macri is already doing this, with intensive media support, suggesting that the inflation since the announcement of the depreciation is just a correction to its true level. One can easily see how higher unemployment would be justified in the same fashion, as an adjustment to the true and sustainable level.

In other words, the Macri government will cause a crisis that does not exist right now—though the economic situation may be difficult and growth in the last three years has not been not high—but blame the effects of its neoliberal policies on the previous government. The idea would most likely be to weather a political storm over the next couple of years and then—after resolving the issues with the vulture funds and normalizing relations with IMF—start borrowing abroad again. That would help promote growth again in time for a re-election campaign in 2019. Growth would be also facilitated by the fact that the economy would be coming out of a crisis, with real wages considerably lower and the working class well-disciplined.

Also, Macri will reduce or eliminate export taxes on grain and soybeans (known as retenciones, or “retentions”), strengthening the position of the ruling elites. The reorientation of the economy toward primary-goods (agricultural and mineral) production, along with a larger role for finance, has been the strategy of the Argentine elites since the last military dictatorship. That is why there is such continuity between the economic plans of José Martínez de Hoz under the military dictatorship of the late 1970s and the early 1980s, Domingo Cavallo under Menem in the 1990s, and (one should expect) Adolfo Prat-Gay under Macri in the coming years.

The initial recession and cuts in retenciones would significantly reduce government revenue and most likely lead to larger fiscal deficits. Hence, austerity will actually worsen the fiscal balance, contrary to what the Macri and his advisors suggest. The key is to remember that austerity policies are not designed to reduce fiscal deficits, even if that is offered up as a rationalization; they are a political instrument for disciplining labor. [And if it is any consolation, at least the adjustment will be done by a right-wing party, in contrast to Brazil, where the same program, essentially, is being pushed by the Workers’ Party; and yet the right-wing forces are also trying to bring the left of center government of Dilma Rousseff down; more on that on another post].
In fact, the coming larger fiscal deficits will most likely be used to try to cut social welfare expenditures, which increased significantly during the administration of the outgoing president Cristina Fernández and her predecessor (and husband) Néstor Kirchner. It would not be surprising if Macri tries to privatize social security once again, something that Menem accomplished in the 1990s, and which had to be reversed in the 2000s as a result of the private system’s complete failure to provide a decent retirement for seniors.

But if the Macri administration is a throwback to the neoliberal era of Menem, it is important to remember that the current historical context is very different. Back in the 1990s, the fall of the Berlin Wall and the collapse of the Soviet Union gave the neoliberal policies of the infamous Washington Consensus a status of unquestionable truth. Supposedly, ideology had vanished and history had come to an end. No alternative was politically possible. Since then, the 2008 global Great Recession has shown the world the perils of unfettered capitalism, and even if the “Keynesian moment” was brief and austerity policies have reasserted themselves, at least it is widely understood that the “free market” is no solution for the problems of development in a globalized economy.

The socioeconomic situation in Argentina is also very different. Back then, the economy was coming out of two bouts of hyperinflation, a whole decade of very low growth with very high unemployment levels and very low real wages, two decades of social conflict with a considerably weakening of the trade unions, several military coups, and an unresolved human-rights crisis from the last dictatorship. Now, the economy has grown at a healthy pace over the last decade, though with slower growth over the last three years. Unemployment remains at relatively low levels, and though inflation is relatively high, real wages have still grown significantly over the decade, with a considerable reduction of inequality.

Further, not only has the reorganization of the economy strengthened the working class, but civil society has managed to bring violators of human rights to justice, and finally come to terms with the nefarious legacy of the dictatorship, something unique in the region. The new government does not control congress, and the election was close, signaling a divided country. In short, society is more organized and better prepared to face the onslaught of neoliberal policies this time around.

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About David Dayen

David is a contributing writer to He has been writing about politics since 2004. He spent three years writing for the FireDogLake News Desk; he’s also written for The New Republic, The American Prospect, The Guardian (UK), The Huffington Post, The Washington Monthly, Alternet, Democracy Journal and Pacific Standard, as well as multiple well-trafficked progressive blogs and websites. His has been a guest on MSNBC, CNN, Aljazeera, Russia Today, NPR, Pacifica Radio and Air America Radio. He has contributed to two anthology books, one about the Wisconsin labor uprising and another on the fight against the Stop Online Piracy Act in Congress. Prior to writing about politics he worked for two decades as a television producer and editor. You can follow him on Twitter at @ddayen.


  1. James Miller

    First, a Succinct and well organized piece. A pleasure to read.
    Thank you, David Dayan.
    Sad but familiar pattern of political events. The key piece of the puzzle not yet known is if the widespread failure of austerity policies to produce the claimed results will ever trigger an effective rejection by the voters, and if so, how long will it take? It hasn’t happened yet. A stronger working class is fine, but what is the state of sources of information in Argentina? in a democratic system, the phrase “Garbage in, Garbage out” sort of sums up the problem, I think.Throughout the neoliberal world, similar events have transpired, supported importantly by a tame press. As well, If the objective of neoliberal policies is to roll back social safety nets and restore corporate or oligarchic control, then austerity like Mr. Dayan predicts has been a success.
    It is clearly not easy to dislodge the vultures, once their nests are well fortified, and the often bitter process can easily lead to the rise of an Argentine version of (God forbid) Donald Trump. Been there, done that.

    1. RabidGandhi

      If you’re looking for an outright rejection of neoliberalism, you needn’t look farther than Argentina in 2001. The people filled the streets shouting “Get Rid of Them All (leaders)” until the leading elite brought forth a leader (Néstor Kirchner) who finally got the message and reversed the Washington consensus.

      Kirchner, incidentally, had previously been a willing part of Menem’s neoliberal policies in the 90s, so that just goes to show that it’s not so important whom one elects, as it is the power of popular movements to get said person to do the right thing.

  2. Clive

    Geopolitically too, the new administration seems quite happy to be a nice, well behaved member of the neoliberal club and promises to not bump into the furniture or scoff too many of the hors d’oeuvres. If it is content to accept crumbs from the table, crumbs is what it — and the lucky people of Argentina — will get.

    I don’t suppose Jim Haygood will be mourning the political exit of the Black Widow, but I, in my not so humble opinion, think this new lot of ex-financiers will be worse.

    1. RabidGandhi

      In addition to the Venezuela volte-face and a different tune on the Malvinas/Falklands issue, there is a more substantive move in the works by the new regime.

      Wikileaks reported that Macri went to the US embassy at least 5 times to seek support in winning the presidency. Now, scant days after the inauguration he has cancelled the Argentine memorandum of understanding with Iran in regards to Israel’s allegations that Iran was behind two bombings against Israeli/Jewish targets in Argentina in the 90s. Very possibly quid pro quo.

  3. wbgonne

    It seems to me that it is increasingly difficult for Leftist, i.e., non-neoliberal economies to survive, nevermind thrive, in the world today. As the neoliberal forces have coalesced globally they are now in position to punish any nation that refuses to follow the program. Until the U.S. reforms itself — or maybe Western Europe — it appears small Leftist nations will have to thread a needle just to survive. Maybe China will emerge, especially possible as the failure of America’s global leadership is underscored by political instability, global warming, florid wealth disparities, and increasing radicalization.

    1. HotFlash

      Erm, I can’t see The Middle Kingdom coming to anyone’s rescue but their own. That will be good only for those countries whose welfare coincides with China’s. Which would be, … ? Pro’ly not Argentina?

      1. RabidGandhi

        The last government, in addition to selling huge quantities of grain to China, also conducted 2 currency swaps with Beijing– all to cries of “dealing with communists!” and “selling out our patrimony to the enemies!” from the opposition. Now that the opposition is in power, they announced a 3rd currency swap two days after coming into office.

        File under: “Same Difference”

      2. Jim Haygood

        From China Daily:

        In 2013, China South Railway(CSR) won a 1-billion U.S. dollar contract which provides 709 carriages to renew [Argentina’s] commuter system.

        By the end of July 2015, all the 709 carriages had been shipped to Argentina.

        A large part of Argentina’s national railway system has been in disrepair or underdeveloped. Aging infrastructure has also led to a number of accidents in the country in recent years.

        China of course is looking after its own mercantilist interests. But Argentina, after allowing its British-built railroads to decay into shambles by a century of neglect and bizarro-world service pricing, will benefit from upgraded rail infrastructure.

        I got to ride the antiquated 99-year-old Belgian-built coaches, with manually-latched wooden doors, on Line A of the Buenos Aires subte, before they were removed from service in 2013. Photo:

        Infrastructure, comrades: it wasn’t a Peronist priority.

        1. RabidGandhi

          Partially correct.

          The railroad system was built by the British, nationalised by Perón in his first term, and then slowly privatised under successive dictatorships and their “democratic” front men. The coup de grace was Menem in the 90s but the whole system was dead well before then, ditched in favour of the more “advanced” US interstate system.

          One of the last moves of the outgoing Kirchner government was to renationalise the system. The new Chinese cars are a delight (and the old A line was indeed fun, but moved at a snail’s pace). Argentina does not yet have the native industry to produce trains, but that was definitely a goal, that now looks farther away.

          And just for comparison’s sake, the top 2 Argentine presedencies in terms of infrastructure built were Perón’s 1&2 terms, and the Kirchners. Meanwhile, the record for least km of subway built per year in Buenos Aires history belongs to… Marucio Macri. All whilst going deeply into debt.

          Fiscal responsibility comrades: it’s not a neoliberal priority.

  4. johnnygl

    “And if it is any consolation, at least the adjustment will be done by a right-wing party, in contrast to Brazil, where the same program, essentially, is being pushed by the Workers’ Party; and yet the right-wing forces are also trying to bring the left of center government of Dilma Rousseff down; more on that on another post].”

    I would like to read the author’s comments on the above in more detail. I cannot figure out why on earth the Roussef admin in brazil is doing what it is doing. They’ve destroyed their base who won’t trust them again for a decade. Will lula ride to the rescue again? I’m not sure he can pull off the same act twice.

    1. Clive

      Unfortunately nowhere is it written that the left is automatically able to walk (adopt and implement progressive policies aiming to improve equality not just on social issues but also economic and financial ones) and chew gum (govern competently and effectively) at the same time.

      While Roussef’s (and Christina Fernandez’s) hearts may have been in the right place, for Roussef not being whiter-than-white on campaign funding and employing accountants who would not only find out any wrong-doing but tell the Workers’ Party leadership something didn’t smell right — and also what seemed pretty blatant gerrymandering via the budget — were avoidable own-goals.

      What I’d always concede is that, for leftist political parties, this job will always be harder. No-one really expects neoliberal or corporatist state parties to be anything other than on the take, it simply goes with the territory. Voters are pretty cynical there, and rightly so, but the cynicism is realistic. The deal is, you put up with our pilfering in return for competent administration. It’s more-or-less latter-day versions of “Say what you like about Mussolini, at least he made the trains run on time”.

      The left, conversely, is expected to be both honest and competent. Rightly so, but harder.

    2. RabidGandhi

      Agreeing with what Clive said, I would also add a couple points:

      1. Syriza. ‘Nuff said.

      2. Here in LatAm (and elsewhere) the leftist leadership has a dismal record of not understanding economics. In the example at hand, the Kirchners ‘swooped in to rescue’ Argentina from the clutches of neoliberalism. But said neoliberalism had been imposed by their own ostensibly leftist, ‘populist’ Justicialist (Peronist) party under Menem (and before under Perón himself). Néstor Kirchner and Cristina Fernández were completely on board with this because they didnt really pay too much attention to econ policy, and privatising everything seemed like a nice liberal thing to do. Only once the street pushed back against the Washington Consensus in 2001 did they see the potential in riding the wave, and did a reasonably good job at it, but it’s not like socialism was in their DNA from the get-go.

      With Dilma, I’d say it’s the same thing. She is leftist in that she is pro-human rights, pro-equal marriage, etc. But she does not have a really leftist economic understanding, so to her austerity seems to fit right in with her other leftist beliefs– just as it did with say Tony Blair or Bill Clinton.

  5. tegnost

    Oh great, another TBTF banker running a central bank. That should work to someone’s advantage…If they are telegraphing a devaluation, what does that mean for the FX market? Seems to me a move that large can make some fortunes if one had insider info. Here’s a thought, wealthy right wing argentinians go to the us dollar in a similar way to us corps leaving money offshore, to create the impression of weakness, which justifies devaluation of the peso and deregulation, in swoop the buzzards (sorry, vulture is already taken in this case) to buy up pesos at 15 for a buck, plus no repatriations! It’s just got win written all over it when you have a central banker who’s going to revalue the currency by selling off the commons in some form or another.

    1. RabidGandhi

      The devaluation of the peso is a bit more tricky than this, since every political party pushed devaluation, just in different forms. The Kirchner’s policy was a slow series of micro-devaluations that kept the peso steadily decreasing against the dollar to keep exports competitive. The bulwark against speculation was (sloppily applied) capital controls that did halt alot of capital flight, but not all.

      In the election, both candidates campaigned on lifting the capital controls and ‘floating’ the peso, with Macri’s team saying it would lift all controls the day after the election. Didn’t happen. Incoming FinMin Prat Gay has now said they can’t go ‘free-market’ just yet (i.e., release ForEx restrictions and devalue the peso in one giant swoop), but the threat is hanging over the economy like an executioner’s knife. Last month after the election, prices shot up across the board (up to 20% increases!) as merchants speculated on expectations. It was the highest inflation recorded in over 20 years.

      The fact is very few people here save in pesos, they all save in dollars or property, mainly because there is no faith in the peso. A mega devaluation does not increase faith in the currency, but it does, as you say, work out dandy for speculators.

    2. Jim Haygood

      ‘buzzards … buy up pesos at 15 for a buck.’

      Fifteen pesos for a buck is an ‘informal’ gray market that exists behind capital controls. You can physically carry hundred-dollar bills into Argentina and exchange them at the ubiquitous “compro oro” shops. But this trade can’t be done from outside the country, in size.

      Second issue is that a unified exchange rate might settle somewhere between 9 and 15 pesos, since 15 pesos is an artificial ‘dollar scarcity’ value produced by capital controls. If the unified exchange rate ends up at 13, speculators lose 13% in a hurry.

      That’s why speculators get paid to take risks. There is no obvious, guaranteed trade, equivalent to picking up ten-dollar bills off the sidewalk.

      1. tegnost

        The buzzards I refer to would actually be the insiders in the new gov who have info not available to speculators as a whole, but I see your point that it’s not as easy as it sounds in my pretty tale…

  6. Alejandro

    Foreign “investment” (direct or via compradors) and foreign military occupation (direct or by proxy) are two sides of the same coin- of conquest, dominion, oppression and exploitation. Any semblance of, or aspiration to, autonomy, is limited by the perceived needs of imperial “manifest destiny”, and thus must be “de”stabilized, then “re”stabilized as a heteronomy, that “better” serves the insatiable needs of the “masters of mankind”…as far as “right” v. “left”, from my pov comes down to the politics of “concentration” v. “distribution” and what defines “surplus” in the context of basic needs…

  7. b1whois

    thank you for this informative article on latin america. as someone who is considering emigration from US to Uruguay, i really appreciate having some info to try to wrap my head around.

  8. Strategist

    What I’m not getting in this piece is why the guy Macri won the election. What did the voters who voted for him think he is offering them?

    1. RabidGandhi

      Excellent question, and one not answered in the article.

      In the first round of voting Macri came in second place, but he had a close enough margin to force a one-on-one runoff with the top voted candidate, Daniel Scioli, who was representing the outgoing Kirchner government.

      Macri and the far right have generally pulled about 20% of the population at most, but he made an alliance with the two largest opposition parties (UCR and CC), who essentially sold their souls just to ensure the Kirchner “successor” did not win. This put Macri over the top, giving him an advantage of less than 2%– enough to win the runoff.

      Furthermore, the Kirchnerist candidate was selected from the rightwing of the party, and ran to the right. Macri meanwhile, well aware of the precariousness of his alliance, actually ran to the left– reversing his previous stances and saying he would not privatise anything or eliminate social spending. By the time of the final election, the two candidates were practically indistinguishable.

      A crude parallel is the “shellacking” of Obama in 2010. Sure there were people that voted for the repubs, but it was by no means out of enthusiastic support for their policies. Likewise here, the enthusiasm was somewhat muted.

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