As she walks home clutching a couple of shopping bags holding the bare minimum she needs to feed her family this week, Florencia Bulacios says it has been too long since she last splashed out on a cut of Argentina’s famed beef.
“No treats for us. I have to rely on the promotions,” sighed the 45-year-old cashier and single mother, explaining that her wages were failing to keep up with inflation that is expected to reach almost 50 per cent this year. “I used to think that this government was going to be able to fix the economy. Now I’m not so sure.”
As President Mauricio Macri prepares to host the annual G20 summit in Buenos Aires today, with some 10,000 visitors already experiencing a taster of Argentina's runaway inflation as hotel prices soar, the favourable reputation that the reformist president still enjoys among world leaders has all but evaporated at home.
When Macri swept to power three years ago promising to put an end to decades of economic volatility, most Argentinians were optimistic about their future. But this year that optimism has begun to fade amid a currency crisis that saw the peso lose about half of its value, forcing a $56 billion bailout from the International Monetary Fund.
Examples of how Macri’s “Let’s Change” coalition has struggled to change the country abound. Trade unions remain as powerful as ever – on Monday the state airline went on strike grounding 371 flights in protest against the suspension of 367 employees earlier this month.
With interest rates until recently higher than 70 per cent, small and medium-sized businesses and the lower middle class in particular have suffered from the continued economic volatility. High inflation means real wages are expected to fall by 11 per cent in the last four months of 2018, according to Ecolatina, an economic consultancy.
As a result, Macri's approval ratings of about 30 per cent are scarcely higher than those of former president Cristina Fernández de Kirchner, who left power with the country on the brink of economic crisis.
“Business was hardly great before [Macri came to power], but it is certainly no better now. Our sums just aren’t adding up, and it’s not like we can borrow to smooth over the cracks. We are in danger of having to close down,” said the manager of a clothing store just off a noisy avenue in central Buenos Aires, requesting anonymity.
The IMF predicts that Argentina’s economy will contract by 2.6 per cent in 2018, and by 1.6 per cent in 2019. That has cast doubt over Macri’s ability to win in presidential elections next year, when he will run for re-election.
Rebound
Much will depend on how soon the economy begins to rebound, with most economists expecting activity to pick up in the second quarter of 2019, although recovery is also expected to be patchy across the different sectors of Argentina’s diverse economy.
"The economy is more likely to surprise on the upside [next year]," said Enrique Cristofani, executive chairman of Santander Río in Argentina, the country's largest private-sector bank, arguing that the recovery would come sooner rather than later.
Cristofani explains that despite the economic volatility this year, there are three underlying factors that are positive for the economy in the medium term: Argentina now has a competitive exchange rate; the IMF-backed austerity drive will lead to fiscal equilibrium next year; and positive real interest rates strengthen the financial system.
“All the evidence [from public opinion] shows that the last 100 days before elections [here] are far more important than the preceding 1,000 days,” said Juan Germano, director of Isonomia, a pollster in Buenos Aires.
“The uncertainty [over who will win] will continue right up until [the second round of presidential elections in] November next year,” he added, arguing that it was unlikely that the first round of elections in October would produce a winner, forcing an unpredictable run-off vote.
The problem for Macri is that it is unclear to many Argentinians how much his coalition has really changed the country. – Copyright The Financial Times Limited 2018
