The Economist Asia - 20.01.2018

36 The EconomistJanuary 20th 2018

1

A

T THE height of summer, workers bun-

dled up in blue snowsuits are hauling

boxes of ice lollies in and out of freezers at a

small factory near Buenos Aires, Argenti-

na’s capital. The lolly-maker, Guapaletas

(“pretty popsicles”), is almost exactly the

same age as the business-friendly govern-

ment of Argentina’s president, Mauricio

Macri, who was elected in 2015. His victory

was a “relief” for the company’s founders,

says Federico Manzuoli, who is one of

them. On a visit to the factory last March,

Mr Macri praised itsfranchise business

model and its pistachio-flavoured lollies.

Mr Manzuoli has much to be grateful

for. Mr Macri promised to open up Argenti-

na’s isolated economy and end controls

imposed by his populist predecessors,

Cristina Fernández de Kirchner and her

husband, Néstor Kirchner, who governed

for nearly 13 years between them. Under

Mr Macri, Guapaletas has better access to

credit, says Mr Manzuoli. A new online

platform, Export Easy, makes it simpler to

get export licences. Guapaletas started sell-

ing through three shops in Argentina and

has now expanded to 69. It plans to start ex-

porting to Chile, Colombia, Paraguay and

Uruguay in March.

But Mr Manzuoli’s confidence is tinged

with unease. Mr Macri’s reforms have run

into resistance. A protest against his plans

to reduce spending on pensions led to the

promised to reduce their budget deficits

(eventually). Despite the delivery-disrupt-

ing demonstration in December, congress

changed the way pensions are indexed to

inflation to make them more affordable. It

cut taxes to encourage companies to give

formal jobs to the 30-40% of workers who

are paid off the books.

This month Mr Macri allowed the expi-

ration of a 16-year-old economic-emergen-

cy law, which gave the president special

powers over debt, taxes and the exchange

rate. Itsdemise is supposed to be a quiet

signal that the ruinous decades of popu-

lism and instability are over, and that Ar-

gentina means to reclaim the European-

level prosperity it enjoyed a century ago.

A balancing act

With the government still knee-deep in the

mess made by the Kirchners and their pre-

decessors, that goal seems far away. Mid-

way through his first term, Mr Macri has

barely begun to solve some of the biggest

problems that enterprises face, points out

Gabriel Brener, the boss of Cher, a chain of

clothing shops. Decades of protection have

sapped the competitive energies of Argen-

tine industries. Trade barriers are seven

times higher than the average for emerging

markets, according to the IMF. Mr Macri’s

government scrapped a system that sub-

jected all imports to licences, but left them

in place for about a fifth ofimports. Despite

the recent tax cut, high taxes on investment

and labour and burdensome rules contin-

ue to discourage firms from growing, con-

strain their productivity and keep workers

in low-paid informal jobs. Labour produc-

tivity has hardly grown since 1980.

Courts are corrupt and schools are me-

diocre, Mr Brener complains. Unions are

beholden to their bosses rather than to

firing of tear gas and rubber bullets and

tied up traffic in Buenos Aires on Decem-

ber 14th, delaying deliveries by two lolly-

laden lorries. After a fast start, Mr Macri

has slowed the pace of reforms. If he can-

not finish the job, Mr Manzuoli fears, Ar-

gentina’s economy will not prosper.

After taking office in December 2015, Mr

Macri floated the peso, scrapped most tax-

es on exports and reduced energy and tran-

sportsubsidies in an effort to restrain a ris-

ing budget deficit (see chart on next page).

He introduced targets for public borrow-

ing, settled a long-running dispute with

foreign creditors, which restored Argenti-

na’s access to international capital mar-

kets, and gave his blessing to inflation tar-

geting by the central bank.

The economy is now moving in the

right direction. It has recovered from a re-

cession that began in 2015 and is expected

to grow 2.5% this year. Inflation has fallen

by more than a third from its peak of

around 40% in July 2016. The IMFpredicts

that the primary budget deficit (excluding

interest paymentson debt) will shrink

from 4.8% ofGDPin 2016 to 1.9% by 2020.

Last October, Cambiemos, Mr Macri’s

party, won a decisive victoryin legislative

elections, giving the government the cour-

age to continue reforms, albeit at a cau-

tious pace. In November it signed a deal

with provincial governors in which they

Argentina’s economy

Getting warmer

BUENOS AIRES

Mauricio Macri’s gamble on gradualism is working, so far

The Americas

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