Presidential power transitions are always tricky – especially when a country is in the throes of an economic crisis.
The changing of the guard in Argentina began on Monday with a closed-door breakfast in the presidential palace between the center-left Peronist-elect Alberto Fernandez and the outgoing, market-friendly president Mauricio Macri.
The encounter, captured by a photo of both hands shaking hands and smiling, conveyed the message of an orderly and cordial atmosphere following the hard-fought campaign.
Voters on Sunday chided the austerity measures implemented under Macri, granting Fernandez and his running mate – former populist president Cristina Fernandez de Kirchner – 48% of the vote against 40% for the outgoing president.
The coming weeks promise a flurry of meetings and negotiations as Fernandez gathers his economic team and formulates policies to revive the country’s fortunes and bring relief to millions of struggling low- and middle-income Argentines.
An arduous task
The Argentine peso strengthened on Monday, but in the streets of Buenos Aires, a general sense of uncertainty is palpable. Closed businesses – victims of the country’s latest downward economic spiral – have become a common feature.
President-elect faces daunting task of reviving a shrinking economy, reducing poverty and negotiating leeway with international creditors to see if Latin America’s third-largest economy will default on its debt obligations again .
“The first thing that is needed is for the new government to present a solid economic plan,” Gabriel Rubinstein, director of Gabriel Rubinstein and Associates, told Al Jazeera.
Fernandez is not expected to take office until December 10, but for many Argentines, relief from the worsening economic hardship cannot come quickly enough.
Poverty has skyrocketed under the Macri administration, unemployment is at 10.6%, inflation is on track to 55% this year and the country’s $ 57 billion line of credit with the Fund International Monetary Affairs (IMF) has been put on hold pending renegotiations – a task that now falls to Fernandez’s new administration.
The Argentine peso and other assets were hammered after Fernandez won a landslide victory in the August presidential primaries, and the country’s foreign exchange reserves have fallen at an alarming rate since then – dropping some $ 22 billion Guido Sandleris, the president of the Central Bank of Argentina, told reporters on Monday.
A third of that was used to support the Argentine peso, another third was drained by people seeking to protect their depreciated local income by buying dollars, and the last third was used for debt service.
Argentina still has $ 43 billion in its reserves, Sandleris said.
After Fernandez won the presidency on Sunday, the country’s central bank tightened currency controls, limiting dollar purchases by individuals to just $ 200 per month.
The measures aim to “protect international reserves and give the new government more freedom to be able to implement its economic policies,” said Sandleris.
“It is not normal that a presidential election generates the level of uncertainty and volatility that we have experienced in recent months. This does not happen in other countries, ”noted Sandleris. “Unfortunately, the Argentines have not been able to build a basic consensus [around economic policy] it would protect us from the uncertainty that a new government can bring.
Fernandez offered only the broad outlines of his economic policy goals, including controlling inflation, increasing wages and benefits, and renegotiating the terms of the IMF’s bailout deal with the country.
“You have the opportunity in 2020 to significantly improve the economy and reduce inflation to 20 or 25%,” said Rubinstein, former governor of Argentina’s central bank.
The formula would result in a slight increase in wages in real terms, but not to an extent that offsets the dramatic drop in purchasing power amid soaring inflation, Rubinstein said, warning that any path to growth will require the insight on the part of the government and the patience of the voters.
“If people expect to recover everything that has been lost in the past two years, then we are in a very bad spot because it will start a spiral of wages and prices,” he said. “You won’t lower inflation and things will get tough for the dollar.”
Ramiro Albrieu, an economist at the Center for State and Society Studies in Buenos Aires, told Al Jazeera that relief for ordinary Argentines is far from imminent.
“A lot of people expect change, but in reality what we’re going to see is stagnation. At least in the first quarter, there won’t be a lot of good news, ”Albrieu said.
The new Fernandez government can adopt measures to help those most in need, Albrieu said, such as increasing financial assistance to low-income families with children or minimizing price increases for the poorest segment of society. . The key, he says, is to craft a three- or four-year “cohesive plan” that strengthens Argentina’s credibility with international lenders and promises long-term wage increases.
“If that was me, I would come up with a plan that is not about fiscal tightening,” Albrieu said. “We have already done this, and honestly, socially and politically, the country has no room for work.”
Albrieu and Rubinstein support the capital controls Argentina’s central bank introduced in the immediate wake of the presidential election, although they say the bank could have implemented them earlier, or done so more gradually. Rubinstein says the timing of capital controls could have been driven by a desire not to anger Macri’s voter base ahead of the election.
Beyond private lenders, Fernandez has said he intends to renegotiate the terms of an unpopular $ 57 billion bailout Macri struck with the IMF. IMF director Kristalina Georgieva congratulated Fernandez on her victory on Monday, saying she hoped to work together to address Argentina’s economic challenges and promote sustainable growth for its citizens.
“I hope the IMF will take a constructive stance,” Rubinstein said, noting that the international lender has its own interests. “You don’t know if when the IMF makes a recommendation, it’s because it’s absolutely convinced it’s the best for Argentina, or it’s the best way for the fund to get its money back.”