Intervention of the new Minister of Finance will define the political and economic future of Argentina

It is expected that Hernán Lacunza will calm the markets in the middle of the country’s recession and the electoral campaign. His first mission will be to convince the IMF to release the next installments of their loan of $ 57 billion

Once again, the promising future of Argentina is shaken by a fragile political and economic system. Eagerly awaited by international markets for having a more liberal approach to governing than previous governments, the reelection of the current president of Argentina, Mauricio Macri, has become a distant dream after the results of the primaries were disclosed. Alberto Fernández was the preferred candidate by the electorate in this first round, setting up the possible return of Cristina Kirchner to power, only this time in the post of vice president.

“It is a return to the old practices of redistributive populism, which has dominated in Latin America since the 1990s, initially maintained by the adoption of the fixed exchange in Argentina, and afterwards based on Brazilian interventionism, put into effect since 2003 by the duet Lula-Dilma. Such conducts resulted in the disappearance of the industrial sector, the primary vehicle of any mature capitalist system,” explains Gilmar Mendes Lorenço, economist and professor of Economics at the FAE Business School.

This opinion is also shared by another expert, a professor of Economics and International Relations at the Positivo University, Françoise latski de Lima. “Without a doubt, the scenario of recession and inflation, along with both a rising poverty index and unemployment, influenced the electoral swing suffered by Mauricio Macri, who will attempt reelection on the 27th of October,” she affirms.

The most recent obstacle to Macri’s government

Nicolás Dujovne

Nicolás Dujovne, Argentina’s ex-Minister of Finance

The resignation of the Argentine Minister of Finance Nicolás Dujovne, announced last Saturday, sent a shockwave through the structures of Macri’s government. “Without a doubt, the change of minister aggravated the uncertainties concerning the future of Argentina’s economy in the short run. However, the change was considered inevitable by the markets, due to the consecutive failures that shaped the attempts at stabilization implemented by the ex-minister Nicolás Dujovne and the aggravation of negative expectations raised by the initial victory of the political group led by Cristina Kirchner,” points out Mendes Lourenço. For Lima, the exit of Dujovne was unavoidable due to his unpopularity, caused by the austerity measures that he had to enact.

Last week, the Argentine peso suffered a devaluation of 19.91% in five days and the Stock Exchange in Argentina accumulated losses of 31.44%. In an attempt to relieve the pressure of the agreed measures with the IMF concerning the middle class, Macri decreed a set of salary benefits and tax reductions. He also passed several measures, such as blocking the rise of gas prices, releasing a salary bonus for workers, and increasing minimum wages—measures that are anything but liberal.

Hernán Lacunza, the new Argentina's Finance Minister
Hernán Lacunza, the new Argentina’s Finance Minister

Lima reminds us that the substitute to Dujovne, Hernán Lacunza, occupied several prior public posts in the governments of Eduardo Duhalde, Néstor Kirchner, Cristina Kirchner, and Macri, and that his selection could help calm the market. Mendes Lourenço says that the new minister will have a path full of challenges ahead, not only due to internal aspects, but also because of the international scenario that currently presents a period of uncertainty.

“The new leader of the economy in that country will face a set of adverse factors not to be ignored, with an emphasis on the intensification of the electoral battle and the risk of outbreak of a global recession, manifested by the exacerbation of the commercial conflict between the United States and China and the decline of industrial production in Europe, in a moment in which interest rates are gradually melting in the overwhelming majority of the planet’s economies,” explains the expert.

The capacity of Lacunza to deal with those adversities will be what determines both his permanence in the post and quite possibly the reelection of Macri. “It is once again expected of the new minister of Economy that his capacity of attempting to bring a bit of peace to the markets and deal with a country in recession, in the middle of Macri’s electoral campaign. He will also have to convince the IMF that releasing the next installments of the loan of $ 57 billion that the government negotiated to stabilize the currency market of the country,” adds the professor of the Positivo University.

“Don’t worry, because I don’t intend to close the economy,” declared Alberto Fernández

Alberto Fernández
Alberto Fernández, he preferred candidate by the electorate in this first round

Experts consider that among the biggest fears of the international market concerning the possible victory of the party in the opposition are the relation between the country and Mercosur and the probable change in economic policy toward a more hermetic model, beyond the political divergence of a left-wing government in the middle of countries governed by the right-wing, such as Brazil, which is one of the biggest commercial partners of Argentina.

“President Bolsonaro manifested in the last months his support for Macri and did not hide his discomfort with the results of the primaries. For him, if the left returns to power in Argentina, there is a risk that the Argentine population might cross over to Brazil, transforming Rio Grande do Sul into something similar to Roraima, as occurred with the fleeing of people from Venezuela,” emphasized Françoise latski de Lima.

The economist Gilmar Lourenço Mendes also points to that same trend concerning the hurdles that will have to be overcome, “in the case of the impact on the Brazilian economy, it is reasonable to suppose the emergency of a situation of antagonism, in multiple interests, from the commercial insertion abroad to the probable aggravation of a lack of synchrony of macroeconomic policies, which could completely end the chances of recovery for Mercosul, especially at the current stage of firm commercial negotiations with the European Union.” 

In response to the misgivings of the market, Alberto Fernández agreed to an interview with the primary Argentine communication media outlets, “La Nación” and “Clarín,” an interview published in Brazil by Valor Econômico, in which he engaged with topics considered polemic concerning his political and economic stances.

“I am Kirchnerist politician. I founded Kirchnerism with Nestor. But I also criticized the other stage of Kirchnerism. We are something new, we are much more than Kirchner,” said the candidate in response to the possible reservations concerning the return of Cristina Kirchner to a post in the government.

Beyond these declarations, Fernández also emphasized that he does not intend to close the economy and added saying that “for me, Mercosul has a central place. Brazil is our primary partner and will continue to be.” Although he has adopted a lighter discourse in relation to Mercosul and the current government in Brazil the candidate still has reservations not only about Jair Bolsonaro, but also about Donald Trump, two heads of state considered by him to be “problems to be resolved.”

Meanwhile, Alberto Fernández did not hesitate in admitting the importance of an open and clear relationship with leaders of both countries. “Bolsonaro and Trump were the presidents that Brazilians and Americans chose, period. I don’t have anything else to say about that, I will have to deal with them. And try to find a way to protect the interests of Argentina,” he said.