Mauricio Macri, Argentina’s newly elected president, took office on Dec. 7 and in his first 10 days in office, Macri raced ahead with economic reforms at a breakneck pace, marking a sharp break with the Peronist policies of his predecessor in office, in an attempt to make good on his campaign pledge to restore Argentina’s economy to good standing in the international business community.
Mauricio Macri, Argentina’s newly elected president, took office on Dec. 7 and wasted no time in setting about to chart a dramatically new course for South America’s second largest economy. In his first 10 days in office, Macri raced ahead with economic reforms at a breakneck pace, marking a sharp break with the Peronist policies of his predecessor in office, in an attempt to make good on his campaign pledge to restore Argentina’s economy to good standing in the international business community.
In perhaps the most significant move, Macri swiftly lifted the prior administration’s currency controls and let the Argentine peso float freely. The controls had been imposed four years ago in an attempt to curb inflation. But while doing little to slow down inflation, the currency controls proved much more effective in pushing up the value of the peso and effectively caused foreign investors to shun the Argentine economy. Although the new administration acknowledged that lifting the controls will cause short-term pain for Argentine consumers, as the peso loses buying power, the thrust of the new economic policy is to boost exports, spur growth and attract foreign investment.
Other key moves by Macri in his first week in office included an income tax cut and further move to stimulate exports by lifting a prohibitive export tax. Macri also packed his cabinet with former financial professionals, hailing from JP Morgan and private equity firms, and other corporate, rather than political, types. He also appointed a well-respected economist as new Central Bank president and dispatched his new finance minister to New York to open negotiations with Wall Street banks to secure much needed new financing to restore Argentina’s Central Bank reserves.
The Macri administration has also signaled that it intends to seek resolution of Argentina’s long-running legal battle with foreign bondholders, stemming from its sovereign default in 2001. Although any final settlement will require approval from a congress still controlled by the opposition party, Macri has made clear that he believes settling with the holdout bondholders is an important step in normalizing Argentina’s position in the world economy.
The fast pace of reform by the new administration has already been well received by the global business community. According to Cate Ambrose, president and executive director of The Latin American PE/VC Association (LAVCA), a number of fund managers have already positioned themselves for investment in Argentina. Some managers have even suggested they would consider raising country-dedicated vehicles. Pan-regional players with billions in dry powder are picking through deal opportunities.
Aurigin’s (formerly BankerBay) data on South America appears to back up this sentiment. Of the propositions we have from investors looking for deals in South America, more than half of them have indicated a specific interest in Argentina. And on the corporate side, of the companies looking to make investments in South America, all but three consider Argentina as the market of primary interest.
Currently, the Aurigin database does not include any Argentinian companies looking to raise capital and only a handful of companies are for sale. Frankly, we’re not very surprised by the relatively low number of Argentine companies who have submitted propositions to date, given that the new business friendly administration has only been in power for a few weeks. But as interest in the country grows and the reforms begin to kick in, we very much expect to see an uptick in proposition from Argentina that matches the enthusiasm of outside investors.