President Macri Heads To Washington

Macri heads to Washington to tout reform agenda Argentine president set to meet Donald Trump to shore up bilateral relationship Read next FT View Macri reforms provide the best hope for Argentina Mauricio Macri and Donald Trump © AFP Share on Twitter (opens new window) Share on Facebook (opens new window) Share on LinkedIn (opens new window) Email3 Save 6 HOURS AGO by: Benedict Mander in Buenos Aires When Mauricio Macri meets Donald Trump in the White House on Thursday, he will have more on his mind than the failed Manhattan property partnership that the pair tried to negotiate over a series of sometimes heated games of golf in the 1980s.  The Argentine president, a former businessman, will instead tell Mr Trump, and the wider audience on Wall Street, that his programme of market-orientated reforms remains on track despite a stubbornly slow economic recovery and wave of recent unrest around the country.  Having completed about a third of his four-year term, Mr Macri has made progress with fixing the most urgent problems inherited from the government of Cristina Fernández, which left Argentina on the verge of a balance of payments crisis.  He has now set about tackling the more structural difficulties, from a bloated and inefficient state to a deeply ingrained culture of protectionism. Fixing these issues, however, is proving tricky. “It is clear that Argentina has a very serious growth problem,” says José Ignacio de Mendiguren, an opposition congressman. He argues that, with the exception of those operating in the booming agricultural sector, most companies have become less competitive in recent years due to some of the highest tax, labour and logistical costs in the region.  Competitiveness is further undermined by a strong currency, fuelled by high interest rates as the central bank struggles to bring inflation within its target range of 12-17 per cent this year. Last week it unexpectedly hiked rates again, by 150 basis points to 26.25 per cent, after a spike in prices. A liberalisation of capital flows has also fuelled an increase in speculative investments into Argentina, profiting from high domestic interest rates. But as government debt increases sharply, the real economy is being starved of investments, warns Mr de Mendiguren, who argues that this policy mix led to Argentina’s crippling 2001 financial crisis.  “No economy can survive this,” he says. “It ends one of two ways: badly, or very badly.” Officials insist taming inflation is a prerequisite for sustained growth. After reaching 40 per cent last year, it is now running at around 26 per cent year-on-year, while Argentina’s economy exited recession late last year after five years of stagnation. But Mr Macri’s economic policies have faced vigorous opposition from trade unions and leftwing followers of Ms Fernández, often in the form of strikes, roadblocks and protest marches that have caused chaos nationwide. With important midterm legislative elections set for October, the government is resisting calls to cut high government spending for fear it will alienate voters even more. It is also adopting a political strategy that worked well for Mr Macri in the 2015 elections: that the only alternative to his policies is a return to the populism of the past. Oscar Muiño, a political analyst, says the Macri government believes its best strategy to sway voters “is repeating the polarisation of 2015 — the new against the old”. This is particularly effective as “the old” — including Ms Fernández — are beset by corruption accusations, with several senior officials and business associates of the former government facing charges or already in prison. But Mr Muiño warns that even if this polarisation strategy brings success in the upcoming elections, it could backfire in the long term if the government fails to deliver on its promises by delivering strong and sustainable growth.  FT View Macri’s reforms provide best hope for Argentina The economics are working but the politics is the weakest point Noah Mamet, a former US ambassador in Buenos Aires, is optimistic, pointing to strong investor interest across the Argentine energy, technology, property, infrastructure and tourism sectors. “Argentina is on the verge of an economic turnround,” he says. “Unlike various false dawns of the past, I am hopeful that this time the profound changes that Macri is implementing will be lasting.”  As well as touting his economic plans, Thursday’s summit with Mr Trump will also give Mr Macri the opportunity to shore up a bilateral relationship that was rekindled when former President Barack Obama visited Argentina last year. Before that, relations between Buenos Aires and Washington had been in a deep freeze for a decade. Juan Procaccini, who runs the Argentine government’s investment agency, notes that $58bn of investment commitments have been made since Mr Macri took power, with about $14bn expected this year, from $5.7bn in 2016. “The earliest investors will get the biggest returns — it’s the law of the jungle,” he says. Mr Procaccini also points to the strong vote of confidence of Argentina’s tax amnesty, which attracted $117bn, the second biggest in the world after Indonesia’s last year. He says: “Many have understood that the country has changed, for good, and we’re not going back.” Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to t