Elected in 2015 with a liberal speech, Mauricio Macri implemented a series of austerity measures in Argentina, raised the end-of-subsidies flag and instituted the free floating of the Argentine Peso (ARS). As a result, he effectively reduced the country’s public deficit and, between 2017 and 2018, negotiated a $ 57 billion loan from the International Monetary Fund (IMF) .

For the international market, it seemed to be the beginning of a new economic phase, but crucial sectors, such as the industry, did not react as imagined. Inflation broke out–and it is expected to reach 57% by the end of 2019–, and the country’s debt remained high, leaving little room for investment even with foreign money injected. The IMF will not release the loan without having a concrete indication that reforms will be made–which now also depends on the election results, whose first round is on Sunday (27).

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Furthermore, poverty, one of the central themes of Macri’s election campaign, has risen again, reaching 35.4% of the population, according to the National Institute of Statistics and Censuses (Indec) earlier this month. When Cristina Fernández de Kirchner left Casa Rosada, in 2015, this index was in 29% of the population.

The Ex-presidente it’s running mate of the country’s centre-left opposition leader, Alberto Fernández. They emerged as the primaries–also known as the PASO–winners in August.

Established by the Ex-President Nestor Kirchner, the primaries are set up to help the Argentinian electorate select which candidates of each party should participate in the elections. Since this time each party selected only one candidate per option, the primaries ended up anticipating the results of the first round of voting, which will occur at the end of October. Broader than any electoral survey, the slate of Alberto and Cristina received 47.65% of votes, while Macri and the senator Miguel Ángel Pichetto obtained 32.08%.

This result helped to intensify the country’s currency crisis and led Macri to even take populist measures, such as freezing service and fuel tariffs.

La Nación journalist José Del Rio recalls that before the PASO, the international sentiment toward Argentina was positive. The dollar was stable and the shares of several Argentine companies were up. Everything changed after the primaries indicated that a center-left government with very different proposals from Macri could take over the country.

But that does not mean that the current president is necessarily the best solution for the country. “On October 28, the cards of Alberto and Macri will be revealed, but the truth is that the campaign promises of both candidates are impossible to fulfill,” said Del Rio.

The road to recovery, experts warn, is long and complex. But three points summarize the challenges of Argentina’s next government:

1. In recession since 2018 Q2

Argentina has been technically in recession since the second quarter of 2018. In that year, the fall in GDP was 2.5%. Prior to that, from 2012 to 2018, the economy grew by 0.5%. In 2019, according to IMF projections, the decline could be of 3.1%.

While Macri argues that four years is a short time to fix the country, and that a second term will do the trick, Fernandez calls for “dialogue”, saying that he will bring together the main sectors of the country to find the best way out of the crisis. 

The scenario is really complicated. The country’s debt, according to AFP, amounts to $ 315 billion–a figure the government says equals 68% of the country’s GDP, while rating agencies say it is almost 100%. 

On one side, Macri asks for a postponement to repay the debt, demonstrating that there may be another default in the history of the country. On the other side, Fernández is opposed to this, but between the lines he does talk about renegotiation, declaring on several occasions that Argentina must repay its debt as it grows back.

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According to AFP, Finance Minister Hernán Lacunza said that it really doesn’t matter who is the winner. Soon after the results, the new president will need to negotiate a friendly exit with creditors as soon as possible.

In addition to the debt and exchange rate, the drop in consumption and high interest rates of up to 80% per year (that try to contain the flight of currencies) also hinder the country from any recovery.

2. The currency crisis and the escalation of inflation

The spike in exchange rates and the escalation of inflation are two of the points of greatest tension between the government, the productive sector and the Argentine population. 

Not only are companies struggling to honor contracts in a highly dollarized economy like the Argentine one, but families are struggling to make their purchasing power count at the supermarket checkout. Argentines have been experiencing double-digit inflation since the 2001 crisis, but the situation has worsened greatly over time.

As already mentioned, the IMF estimates that inflation will reach 57% by the end of 2019. Moreover, the country’s reserves to contain the dollar hike are at the limit. Unlike Brazil, the Argentine Central Bank has a small amount available as a leeway.

Most assets cannot be used because they are loan lines, IMF debts or even savings from local investors. At the end of August, Amherst Pierpont Securities reported to O Globo newspaper, the Argentine BC’s available reserves were $ 9.7 billion.

Furthermore, the total of reserves, including those that cannot be used, could already be below $ 50 billion. Some analysts bet that after the elections the scenario will calm down; others say that it will be worse. Today, just before the elections’s first round, the exchange rate is in ARS 60.50 per USD.

3. Unemployment and poverty on the rise

Also this year, the unemployment rate, which has remained relatively stable in previous years, has risen again to 10.1%, accompanied by a growth in informality. And at this point the two main candidates have totally opposite proposals. Macri wants a labor reform (very similar to the one already implemented in Brazil). Fernández, on the other hand, does not consider any reform–on the contrary, he wants to enter into a non-resignation pact with entrepreneurs, betting on measures that will increase consumption and, as a result, would generate more jobs.

Poverty is also on the rise in the country. As already mentioned, the index released by the National Institute of Statistics and Censuses (Indec) went from 29% in 2015 to 35.4% this year–it is the highest index in a decade. 

Indec calculates this rate from a set of basic needs such as food, essential goods, and services such as transportation and health. The data released earlier this month also indicates that 50% of Argentine families have an income of ARS 28,591 (the equivalent of BRL 1,944 or $486), a value that cannot afford the basic food needs for a household in greater Buenos Aires, which costs ARS 31,148 (BRL 2,118 or $529.5).

On this topic, Fernández has already mentioned that he intends to “unite” popular economy entities and companies that may be capable of reducing the prices of essential food items, implementing a food security policy. On the other side, Macri says that he needs to fix the country’s economy as a whole so that this situation really reverses.