Bruno Binetti speaks on the Macri administration’s evolving political environment as Argentina takes in IMF relief funds in an effort to restructure the country’s deep macroeconomic imbalances. Macri faces the competing demands of raising utility prices to market rates while also protecting the social and economic well being of the country’s population. This inherent tension in Argentina’s economic difficulties endangers Macri’s political goodwill and the “excessive optimism” among his voter base.
Comments by Bruno Binetti:
“What we are experiencing now in Argentina is a consequence of excessive optimism, especially last year when Macri won the midterm elections. He publicly announced that the worst of the economic adjustment was over. That was clearly not the case. That said, he still has around 40% approval rating, which is pretty high for a president in Argentina. We have to remember that this is a coalition government that is in a minority in both houses of congress and doesn’t control most provinces. So what the government will try to do now is to adjust expectations to try to accelerate as much of the economic adjustment as possible in order to be in better shape for next year when there are presidential elections in October.”
“At the same time that Macri has to accelerate fiscal consolidation, he has to make sure the social front is taken care of. [Former Energy Minister in the Macri cabinet] Aranguren did a terrific job in adjusting public utilities to actual prices, bills to actual prices. In this new era that the government is entering, adjusting public utility rates is not sustainable on the social front. While cutting public spending you cannot also increase what people have to pay for electricity, water, and so on. What they are trying to do is pretty difficult, but it is also sending signals to the business sector that the reforms will continue while at the same time keeping those [fiscal] reforms socially sustainable.”
As global oil prices collapsed over the last two years, regional governments have started to lose their leverage in the energy industry. To attract international investors, they must offer increasingly favorable terms, which means ceding more of their own control.
As Latin American countries reassess their energy policies in light of lower oil prices, there is an opportunity to apply lessons learned from the US experience to enact regulations that mitigate environmental risks, strengthen public support, and attract investment.
The election of President Mauricio Macri may signal the start of a new era in Argentine energy policy and cooperation with the United States, but the new government still faces challenges to increasing oil and gas production and erasing energy subsidies.