Argentina is not alone among major emerging economies in trying to weather the current run on currencies due to the rallying U.S. dollar and rising interest rates. But with a history of recurrent defaults and devaluation of the peso, Buenos Aires has greater cause for concern. President Mauricio Macri , whose market-friendly image ensured Argentina’s return to the global capital markets in 2016 after a decade, has a special stake in ensuring that his reforms remain on track. Following a record sovereign debt issue that year, Argentina became the second Latin American state after Mexico to launch a 100-year maturity bond in 2017. The new optimistic narrative was based on the former businessman’s commitment to reducing the fiscal deficit, building on the prevailing reasonable ratio of public borrowing to GDP. Nevertheless, Mr. Macri’s poll promise to make Argentina a “normal country” has been put to the test mid-way through his term. In early May, the currency tumbled to a record low against the greenback, forcing the central bank to raise key interest rates thrice within a week to 40% to shore it up. Mr. Macri even sought a multi-billion loan from the IMF, a deeply sensitive move given the once-hostile relations with the lender and a public apprehensive about the institution’s overall mission. The most recent crisis in Latin America’s third largest economy — the 2001-02 default to the tune of $95 billion, the largest in the world — had unleashed hyperinflation, social unrest and political instability. When the then socialist President, Néstor Kirchner, took an aggressive stance vis-à-vis investors, the country was effectively closed from global money markets for a prolonged period. Then, at the height of its economic collapse earlier this decade, Mr. Kirchner’s wife and successor, Cristina Fernández, lampooned the hedge funds, which held out against the country’s debt restructuring terms, as “vultures”. Now the situation has raised questions about the sustainability of Mr. Macri’s so-called gradualist reforms, which were dubbed neo-Keynesian rather than neoliberal.
With the treasury minister recently hinting at further fiscal tightening, there are signs of a shift in tone, if not the overall policy. Conversely, Mr. Macri has been prudent to promise continuity with his cautious approach to regulate subsidies and to legislate tax and pension reforms. The era of economic profligacy that was propped up by the commodities boom in the last decade is probably history now. At the same time, no price is too high to avert a repeat of the horrors of the social upheavals of more recent years. Occupying a centrist platform, Mr. Macri is, however, better placed than most other politicians in the country to negotiate a path ahead to balance conflicting interests.