24 TheEconomistAugust 17th 2019
1T
he electionof Mauricio Macri in 2015
was supposed to usher in a new era in
Argentina, a country with a reputation for
toothsome steaks, rapid inflation and de-
faulting on its debts. Mr Macri promised to
tame soaring prices with tight monetary
policy, a problem Cristina Fernández de
Kirchner, Argentina’s previous president,
had tried to obfuscate by publishing dodgy
macroeconomic data and imposing cur-
rency controls. Mr Macri abolished these,
allowing the peso to float freely, and re-
moved export quotas and tariffs. Investors
applauded. After resolving long-standing
disputes with bond investors, Argentina
was able to issue debt once more. In June
2017 Mr Macri even issued $2.7bn worth of
100-year bonds at a yield of 8%. They were
almost four times oversubscribed.
Good fortune did not last. Unexpected
changes to inflation targets and rapid debt
issuance alarmed investors in 2017. These
qualms mushroomed into a currency crisis
last year. As the peso plunged, the central
bank raised interest rates to 40%. Mr Macri
was forced to seek a $57bn loan from theimf. In order to satisfy the terms of the bail-
out, he has cut public spending and raised
the prices of utilities, such as gas and elec-
tricity, and public transport. The crisis has
taken a heavy toll on the economy. Argenti-
na has been in recession for the past year;
inflation is over 50%. The poverty rate, as
measured by the Catholic University of Ar-gentina, has climbed from 27% in 2017 to
35% now.
Economic hardship has not played well
with voters. “We voted last time for the
president because we wanted a better life,
especially for our children,” says Mercedes,
a shop assistant in Buenos Aires. “But life
was worse under him. We worked more to
have less.” On August 11th they voiced their
discontent in primary elections for the
presidency. The opposition, led by a veter-
an Peronist, Alberto Fernández, with the
former president Ms Fernández (no rela-
tion) as his running mate, won 47% of the
vote. Mr Macri’s coalition won just 32%.
The reaction of investors was swift and
vicious. On August 12th they rushed to
dump Argentine assets. Mr Macri may not
have been a panacea for all Argentina’s ills,
but his stewardship of the economy was far
more sober than that of his predecessor,
who now seems likely to be restored to
high office. Argentina’s stockmarket, the
Merval, fell by 37%. At one point in the day
the peso was down by 30% before the cen-
tral bank intervened and raised interest
rates to 74%. It still closed 15% lower. In
dollar terms, the stockmarket’s collapse is
the second-biggest one-day drop recorded
anywhere in the world since at least 1950.
The 100-year bonds that investors had
clamoured for when Mr Macri issued them
are now worth just 54 cents on the dollar,
implying a default risk of 57%.
The rout in asset prices was severe, first,
because the hope that Mr Macri can recoverArgentina’s electionThe bonds that tie
BUENOS AIRES AND NEW YORK
An opposition triumph raises the prospect of another defaultMacrieconomic crisisSource: Datastream from RefinitivArgentine peso per $
Inverted scaleMacriloses
primary
electionMauricioMacri
becomespresident2015 16 17 18 196050403020100The Americas
25 Guatemala’snewpresidentAlso in this section— Bello is away