What is Macri s true vision of the economy? Total s Ricardo Darré is appointed as YPF s new CEO

Transcription

1 Future strategy influenced by conflicting analysis on Macri s 2015 victory Macri s Radical allies propose a permanent agreement with opposition elements What is Macri s true vision of the economy? The government promotes power generation from renewable sources Total s Ricardo Darré is appointed as YPF s new CEO * For aspects where more detail is required, subscribers are welcome to request a more in-depth report. Please info@menas.co.uk or call +44 (0)

2 Future strategy influenced by conflicting analysis on Macri s 2015 victory 51.34% of the vote. Was his strategy the right one? Or it was wrong but he won nonetheless because Cristina Kirchner s Macri s Radical allies propose a permanent agreement with opposition elements Spain s Pactos de la Moncloa after the death of General Francisco Franco in 1975, and the more recent Pacto por strategy was plagued with electorally sui- México in 2012, are precedents for this President Mauricio Macri would not have cidal decisions? This dilemma can be ex- Most Radical leaders including the cur- strategy. It aims to give some certainty to won the 2015 election if he had run solely pressed even more narrowly: would Macri rent UCR president, José Corral, and for- the viability of medium and long-term as candidate of his own Propuesta Republi- have won if Julián Domínguez had been mer Senate minority leader Ernesto Sanz policies that require sustained political cana (PRO) party. The formation of the Cam- the Frente para la Victoria (FPV) candidate believe that Macri should seek a perma- support. Although some PRO leaders may biemos alliance between PRO and the in the Buenos Aires province gubernatorial nent agreement with opposition forces see the advantage of such an approach, Unión Cívica Radical (UCR), and to a lesser election instead of Aníbal Fernández? The instead of continuing with the current the core of the party structure, led by degree the Coalición Cívica para la Afir- province has been a traditional Peronist strategy of negotiating for the support of a Marcos Peña and Jaime Durán Barba, has mación de una República Igualitaria (CC-ARI) stronghold but Fernández who has been variable alliance on a case-by-case basis. resisted it. provided Macri with electoral machines and competitive candidates in districts where the PRO had no significant presence. Before the alliances and candidacies were registered with the authorities, however, some of Macri s supporters and independent observers had advised him to reach an agreement with Sergio Massa (b.1972) to include the latter s Frente Renovador (FR) in accused of having links with the narcotics trade lost and this, in turn, led to the FPV s presidential candidate, Daniel Scioli, losing votes as well. Campaign manager and current Chief of Cabinet of Ministers Marcos Peña (b.1977) and the Ecuadorian born campaign advisor Jaime Durán Bárbara (b.1947) have naturally defended the course of action that Macri Most Radical leaders believe that Macri should seek a permanent agreement with opposition forces The national strategy of negotiating with other parties on an issue-by-issue basis contrasts with that followed by Governor María Eugenia Vidal (b.1973) in the province of Buenos Aires. She has achieved important positive results in the provincial legislature, where Cambiemos does not have majorities of its own, by forming a permanent alliance with Sergio Massa s a broader alliance in order to secure victory. followed and invoke his victory as evidence Although Cambiemos has avoided a public Frente Renovador. Macri refused to do so. Massa is a Peronist of its success. Other members of the govern- debate, the local media has reported on and was former president Cristina Kirch- ment coalition, however, believe otherwise. the alliance s internal debate over the issue Even if PRO were to accede to the Radicals ner s Chief of Cabinet until he split with her which has become apparent during the wishes and enter into a long-term alliance in 2009 and became a prominent opposi- This debate is not a theoretical one that regular meetings of its leadership. Ernesto with an opposition group, the debate tion leader. Macri s campaign had put an will be left to historians and political scien- Sanz, in particular who has direct access would not end there; the question would emphasis on the PRO s novelty and its history tists. This is because it influences the possi- to the president has insisted on the then focus on who that permanent partner of being uncontaminated by links with Nes- ble future political alliances discussed be- need to reach a permanent agreement should be. Rumours suggest that Sanz fa- tor and Cristina Kirchner or Peronism. low and it will be important in determining with at least part of the opposition. By do- vours an agreement with the official Par- the government s strategy for the October ing so on a series of issues and measures tido Justicialista rather than with Massa s Macri won in the November 2015 second 2017 congressional elections. they could be transformed into a joint long dissident faction. round, but only by a small margin with -term government programme.

3 What is Macri s true vision of the economy? his team. If the current gradual and soft strategy to cure Argentina s economic ill- factor in economic development, but believes that the state must play an essential On 18 May, the Ministry of Energy and Mining published Resolution 71/2016 as a nesses fails, then one should expect Macri role in pushing the private sector forward, first step towards the so-called Programa During the 2015 political campaign, Cristina to reluctantly resort to a harder and more and forcing the economy to grow. Public RenovAr alternative energy programme. The Kirchner, and the candidates of her Frente drastic orthodox therapy. works may be the key to understanding resolution provisionally approves a set of para la Victoria (FPV) alliance, persistently portrayed Mauricio Macri as a neo-liberal. In Argentine terminology, a liberal is someone who believes in laisser faire, laisser passer economics: free markets and a small state. Consistent with this image, Peronist candidates and spokespersons warned the voters that a Macri presidency would mean the dismissal of large numbers of public employees, the reduction or elimination of Rather than reduce the public budget, Macri seems more inclined to spend the same amount but more wisely this view; Macri dreams of carrying out the largest infrastructure programme in Argentina s history. Such a programme would not only provide private enterprise with essential inputs that it may not be able to produce by itself such as energy, water and transportation but would also mean the creation of large numbers of jobs, with their impact rules under which interested private sector parties will be able to install solar panels and wind turbines. In order to guarantee the transparency of the process the government is inviting all interested parties to ask questions and submit suggestions and recommendations. The final set of rules which will regulate the generation of electric power from renewable sources will then take these submissions into account. social programmes, and the complete liber- Macri s own thinking, however, is not ortho- on consumption and, therefore, the en- ation of imports to the detriment of local dox. He appears to think that the huge largement of the domestic market. The rules that are under consideration will industry, as well as other alleged horrors. By contrast the majority of orthodox economists currently argue that excessive regu- growth in public spending that took place during the Kirchner administrations is not bad per se. He argues that such a large increase in public budgets was bad because it The government promotes power generation from renewable sources regulate the installation of solar panels and wind mills and might include new technologies that have been suggested. Instead of simply enacting the rules, the lations create obstacles to investment and was poorly managed, with most of it being government has published them to receive growth; that too large a state-sector means squandered through demagogic measures Law originally stipulated that energy questions and suggestions before sanc- the less efficient appropriation of re- and also being riddled with corruption. Ra- generated from renewable sources had to tioning the regulations. sources than that which can be expected ther than reduce the public budget, Macri account for 8% of total energy output by from the private sector; and that protec- seems more inclined to spend the same 31 December This was subsequently Two features of Argentina s physical geog- tion for domestic enterprises should be amount but more wisely and honestly. amended by Law which increased raphy should be taken into account by applied to counter-act dumping and other the proportion to reach 20%, in successive potential investors: the winds in the south- unfair trade practices but that it should not The current government s economic orien- stages, by 31 December ern region of Patagonia are the most con- free them from healthy competition. tation should therefore be regarded as stant in the world, and the solar radiation desarrollista or developmentalist pragma- This ambitious goal requires a major na- in northern Argentina is equivalent to that Mauricio Macri has orthodox economists tism. In Argentine political and economic tional effort which the current national of Saudi Arabia. These factors provide opti- like the current president of the Banco de jargon, a desarrollista is someone who government believes must be open to pri- mal geophysical conditions for the installa- la Nación Argentina, Carlos Melconian, in trusts private enterprise to be the main vate initiatives. tion of wind turbines and solar panels.

4 Total s Ricardo Darré is appointed as YPF s new CEO Ricardo Darré will become YPF s CEO on 1 July. Darré is a mechanical and industrial engineer who graduated from the elite Instituto Tecnológico de Buenos Aires (ITBA) and has worked for international companies including Schlumberger in Angola, Congo DRC, and the Neuquén basin in Argentina. Since 1987 he has worked with Total in several countries including Norway, Thailand, Argentina, Russia and France. From 2014 until his latest appointment he had been based in Houston as Total s head of E&P for the US. Key Risks Economy: Inflation Comment The inflation rate has declined, but it remains high. Consumer price increases averaged 3.5% in May after having risen by 5% in April. A further 2.5% increase is now expected for June. This would mean that inflation in the first half of 2016 would have totalled 24.1% which compares to the Minister of Treasury and Finance s January forecast of 25% for the whole of the year. As explained above, it seems that employment has displaced price stability as the government s top priority. Current interest rates on pesos are very high compared to interest rates on the US$. This is a consequence of the Central Bank s issuing of bonds to reduce some excessive liquidity left by Cristina Kirchner. Such efforts will, however, be limited as long as the Treasury continues to carry a large budget deficit and the Central Bank is forced to issue pesos to finance it. Further revaluation of the Argentine peso Social security Menas Associates has warned in previous editions of Argentina Strategic Brief that, since the December 2015 lifting of currency controls, the evolution of the US$/AP exchange rate has lagged behind the high rates of inflation in the Argentine domestic market. Moreover, the price of the US dollar continues to fall in nominal terms vis-à-vis the peso, which is undermining the competitiveness of Argentine exports. The exchange rate was pesos to the US$ at the end of March, at the end of April and at the end of May. Argentina is attracting large volumes of foreign exchange into the country because: agricultural exporters still have large volumes of grains and beans to sell; the high interest rates are attracting hot money; and Congress is also considering a tax moratorium. For many years the agency in charge of managing the national pension fund systematically paid the majority of retired workers sums that were calculated in accordance with legislation that has, in effect, now been ruled as being incorrect by the Supreme Court. Two rulings issued by this tribunal ordered the agency to pay substantially higher pensions to the plaintiffs. Cristina Kirchner simply ignored the Court s resolution but, by contrast, Macri has decided to offer plaintiffs an agreement. This will contain a schedule for the cancellation of past debts and an increase in their pensions that may be somewhat lower than some interpretations of what the Court s ruling will allow. The cost of cancelling past debts is expected to be covered by the income raised through the tax moratorium that Congress has started to debate. Menas Associates will continue to cover it in future issues of Argentina Strategic Brief. The application of the new interpretation not only means a current debt, however, but also an increase in future payments to both current retirees and to all future ones as well. Independent experts believe that the decision to honour the Supreme Court s decision should have been accompanied by an increase in the retirement age to finance the additional cost. The government seems to agree but has decided, for political reasons, to postpone the decision.

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