Mauricio Macri takes over as president of Argentina on Thursday, promising to harness its vast natural resources and jettison populist policies to revive an economy that has for decades fallen short of its potential.
If he gets it right, investment could stream into the country, given its Pampas grains belt, promising technology sector, highly educated work force and some of the world’s juiciest shale oil deposits.
Outgoing leader Cristina Fernandez is from the populist tradition of Juan Domingo Peron, and his iconic wife Evita, who expanded the reach of the state in the 1940s.
During her eight years in power Fernandez ring-fenced Argentina with protectionist trade policies meant to bolster local industry. She increased welfare spending at a time when millions of Argentines needed help climbing out of poverty after a devastating 2002 economic crisis.
Aided by high world grains prices, her first years in power saw strong economic growth. But the end of the commodities boom combined with heavy government spending and currency controls to hit growth and send inflation soaring to well above 20 percent.
Macri, a conservative businessman and mayor of Buenos Aires, won the presidential election last month by pledging to ease trade and currency controls and give the free market a chance.
“The only way to fight poverty is to create more jobs,” he said, emphasizing the bigger role the private sector is to play.
The enmity between Fernandez and Macri has risen to the point where Fernandez and her allies say they would not attend Macri’s inauguration.
Supporters say the changes he will bring in are long overdue, but he will have to tread carefully if he is to cut state spending to sustainable levels without pushing the troubled economy into recession.
“With the resources this country has, there’s no reason for our economy to be stalled or imports to be blocked,” said Teresita Ugolini, a 70-year-old cosmetologist who remembers the open export policies that once transferred the wealth of the Pampas to the cosmopolitan boulevards of Buenos Aires.
In 1930, Argentina was the world’s No. 6 economy with a gross domestic product bigger than the rest of Latin America combined, but financial mismanagement and political instability in recent decades have caused one crisis after another.
Macri wants to light a fire under exports by letting the overvalued peso currency weaken, and to settle a politically sensitive lawsuit filed by U.S. hedge funds who are demanding full repayment of debt Argentina defaulted on in 2002.
A settlement would open up much-needed international bond financing, and Macri’s team knows its way around Wall Street.
Incoming finance minister Alfonso Prat-Gay was global head of foreign-exchange research at JP Morgan before leading Argentina’s central bank from 2002 to 2004.
The local Merval stock index has risen 17 percent since Macri did better than expected in the first round of the presidential election and then went on to beat the candidate from Fernandez’s party in a run-off.
Continued optimism depends on quick action on issues like closing a 50 percent gap between the official and black market currency exchange rates, and freeing up farm exports.
Corn and wheat planting have been stunted by export quotas meant to control local food prices. Farmers say the quotas kill profitability by over-supplying the local grains market.
Macri says he will immediately ditch the quotas. He also vows to eliminate export taxes on corn and wheat while steadily lowering a levy on soy exports.
“Macri needs to get some immediate points on the board to justify the confidence that exists on things like exchange rate unification and elimination of farm export taxes,” said Gary Kleiman, of Kleiman International Consultants in Washington.