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All Change in South America! Britain (and the EU) may need to up the economic stakes

The political landscape of Latin America has changed in recent weeks. The Chavista regime in Venezuela has suffered its first electoral defeat in sixteen years. In Argentina, the right-wing candidate for the presidential election won after twelve years of socialist rule – first by Nestor Kirchner and then his wife Cristina. Likewise in Brazil, the opposition in Congress is attempting to impeach unpopular left-wing President Rousseff. In Cuba, it is hoped that warmer relations with the US may lead to political and economic reform. South America is now re joining the global race.

Change came to Argentina last week, when Mauricio Macri, a centre-right leader and former president of Boca Juniors football club, became the surprise replacement of Cristina Fernandez de Kirchner. Mr Macri’s victory is a historic political achievement in itself. Since the return of democracy in 1983, the presidency has alternated between Peronists and the historic Radical Party. Instead, Macri founded his own party, PRO (Republican Proposal), in 2005 to win the mayoralty of Buenos Aires City and managed only earlier this year to hatch a winning coalition of political parties in Cambiemos(the aptly named ‘Let’s Change’). To wrestle power from Peronism in only 10 years is an impressive achievement, but like any new and ideologically wide coalition, his grip on power is unstable and his team untried. He is far from having a majority in the newly elected House and Senate, having lost 13 out of 24 electoral districts. Curiously, Macri becomes the first non-lawyer (or General) to become head of state since Isabel Martinez, who was a dancer before becoming third wife and vice-president to General Peron, took office on his death in 1974.

Mauricio Macri is an engineer: there is much in Argentina to rebuild.

His priority will be the failing economy. The IMF projects modest growth of 0.4 per cent for this year followed by a decline in output of 2.6 per cent in 2016. Lacklustre economic growth is in contrast to inflation, at 16.8 per cent for 2015 and projected at 25.6 per cent for 2016. Meanwhile, commodity prices, which allowed Argentina’s recovery after the 2001 crisis, remain low.

During his first week in office Macri has acted with purpose. On Tuesday he abolished high taxes on the export of most agricultural products and lowered those for soya beans. On Thursday he abolished currency controls on the dollar so that Argentines may now expect a single exchange rate that reflects the true market value of their currency. His economic plan is to encourage agricultural and industrial production – depleted by the high taxation that hit the smallest and poorest producers; he aims to attract direct foreign investment, and normalise currency and export controls. The local centre for national statistics – the first ever to be censured by the IMF for unreliable data after political intervention from the Kirchner governments – will regain its independence and credibility. The new government will also need to tackle high government spending, estimated to have grown from 30 per cent in 2003 to 45 per cent of GDP in 2015.

After Argentina came the parliamentary elections in Venezuela, where chronic shortages of loo paper serve to illustrate the quality of the post-Chavez regime of Nicolas Maduro. Hit by low oil prices, the Venezuelan economy saw GDP shrink by 10 per cent and inflation rise by 100 per cent in 2015. As voters chose to bring an end to an increasingly authoritarian and self-deluding rule, opposition parties secured control of congress after sixteen years with a two-thirds majority. The focus there will also be on Venezuela’s poor economic performance and continuing high levels of poverty. And yet the confrontation between congress and the presidency, left and right, lives on in Venezuela and South America.

But Argentina and Venezuela signal change. South America is tired of left-wing populism and of playing the victim to US imperialism: this recipe for government does not work. Inflation and poverty won’t be resolved by massaging figures but by credible economic policies that encourage stable growth and investment. The Chilean and Colombian models of market economies with strong links with the US once again seem attractive quite simply because they produce better results. As South America stumbles into the global race again, it should be a timely reminder for this country: Britain must redouble its focus on exports, competitiveness and productivity to succeed.

 

Jocky McLean

Jocky McLean was Assistant Director of Politeia between 2014 and 2016.

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