The international community is in shock after Argentinas open primary election, which is widely seen as predictive of the results of the general election in October.
The 15-point defeat of incumbent president Mauricio Macri at the hands of Alberto Fernández, a former minister in the previous government, was resounding and unpredicted. Former president Cristina Fernandez de Kirchner, running for vice president, was on the ticket for tactical reasons, but she masterminded everything,
Fernández de Kirchner led the most corrupt government in recent memory. She is on trial for corruption and is the object of 14 other criminal investigations. She presided over an economic disaster, with inflation running at 25%, a 7% fiscal deficit, a devalued currency. The country was isolated from the international community, and private investment collapsed due to a suffocating tax burden and the seizure of privately held assets, including pensions and major concerns such as the energy giant. She also debilitated the institutional framework of the country, including the judiciary, and led an assault on the freedom of the press that was condemned by foreign organizations. Her foreign policy was aligned with every dictator one can imagine.
When Macri took over in December 2015, people were much relieved. Here was a guy apparently willing to dismantle Fernández de Kirchners legacy and six decades of Peronismo, Argentinas cultural and political disease. However, Macri feared that if he applied shock therapy and opted for a deep reform of the state, the Kirchner-aligned opposition would destroy his presidency. He was obsessed with being the first non-Peronista to finish his term. He took some much-needed measures, coming to an arrangement with the foreign bondholders Fernández de Kirchner had warred with for years, reducing agricultural export taxes, lifting currency controls, and raising tariffs on government-subsidized services. But he left the essential problems intact by barely making a dent in public spending, the tax burden, and the dependency of half the country on the government purse.
Fernández de Kirchner and her late husband had almost doubled the size of the government as a percentage of the economy. Today, four years into Macris administration, government at all levels still consumes 47 percent of Argentinas production every year. The tax burden amounts to 42 percent of GDP and, as economist Robert Cachanosky likes to remind his countrymen and -women, some 8 million people who work in the private sector sustain 20 million Argentineans who cash a government check every month. Given this state of things and the fear of rattling the cage too much, the central bank continued to print money like crazy in the first part of Macris tenure. That and the structural imbalances that led to the collapse of the peso last year eroded any confidence Argentines had in the authorities ability to rein in inflation, which until recently was running at twice the rate inherited from Fernandez de Kirchner. In 2018, after the peso lost 50 percent of its value in a matter of months, Macri was forced to appeal for help from the International Monetary Fund. The IMF approved a $57 billion rescue plan and imposed severe discipline, all of which is now resented by the middle class, which, having suffered under Fernández de Kirchner, nevertheless blames Macri rather than her for the economic hardship.
The victory of the Fernández ticket in the primary election has led to a new, traumatic, currency devaluation as Argentines and foreigners take refuge in the dollar. Thinking that the best way to restore confidence and his own electoral prospects is populism, Macri has now announced a battery of measures that will raise public spending and increase the mounting debtor fuel inflation, depending on how the government decides to fund the spending spree.
There is a lesson in Macris plight. Simply put, the only effective way to overcome a statist legacy of the kind Macri received from his predecessor is to confront the truth and enact a profound structural reform of the state on all fronts from day one. Any other approach will end up transferring responsibility for the failed system to the new guy.