Fiscal prudence

In the recent past, several economies including Brazil, Mexico and Egypt, among others, have had to undergo a difficult combination of austerity and reforms. Argentina is also one of them.

When President Mauricio Macri took office in December 2015, he inherited an economy which was closed in many ways due to protectionist policies having been put in place by former President Cristina Fernandez de Kirchner. Macri promised reform, opening up Argentina to global trade, and getting economic growth back on track.

Almost immediately after taking office, his administration let the Argentine peso float freely in order to infuse confidence in international investors. Since then, he has also reduced and in many cases done away with export taxes and restrictions on both agricultural products and minerals, and has also been keen on free-trade agreements.

Impact of reforms

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The positive impact of his reforms can be seen on the economy. Though inflation remains high, it is expected to come down to nearly half the level of the 40% rise seen in 2016.

The country’s primary fiscal deficit fell to 359.4 billion pesos ($22.58 billion), or 4.6% of gross domestic product in 2016, beating the goal of 4.8% and sharply lower than the 5.4% recorded in 2015.

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And even though Argentina’s gross domestic product contracted by 2.3% in 2016, the economy grew by 0.5% in Q4 2016 from a quarter ago with growth in the third quarter revised to 0.1% from the contraction of 0.2% reported previously.

So why the protests?

Argentinians have been holding protests and marches against the Macri administration, accusing its policies of having increased income inequality. Labor unions have engaged in strikes taking the the view that the government has undertaken measures which help businesses but hurt the poor.

The administration has also been accused of being unable to protect jobs as it had promised. For instance, the government’s decision to do away with a 35% percent tariff on computer imports was beneficial to consumers because of cheaper machines. However, it also led to the closure of a Bangho laptop assembly factory in Buenos Aires and cost 200 jobs. People are afraid that more jobs could be lost going forward.

There have been other implications of Macri’s policies on the economy as well. Let’s look at them in the next article.

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