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Argentina Moves to the Right Following Election
Nov. 24, 2015 The election of center-right candidate Mauricio Macri has provoked a sense of
optimism about the country’s future.
For the first time in years, political developments in Argentina, specifically the election of centerright candidate Mauricio Macri as president, have provoked a sense of optimism about the
country's future. Many business' and news outlets have heralded his arrival with anticipated
economic reforms. The media has marked his win as the ebbing of the 'pink tide' in Argentina, a
shift away from populist leaders for the country. The result is significant for the region with Macri
using his post-election comment to seek Venezuela's temporary suspension from Mercosur, a
common market that has taken on leftist political connotations in recent years. However, the
impact of Macri's electoral victory will go beyond overdue economic reforms and an offensive
against strong-left governments in the region. His ability to remain in office and persuade other
Mercosur members to suspend Venezuela will directly impact the developing identity of
democracy in both Argentina and Latin America.
History has not favored non-peronista presidents in Argentina. Macri is only the third nonperonista elected president since Argentina's return to democracy in 1983 and, if he completes
his term, he will be the first to do so. This will also mark the first real transition of power in
Argentina, since 2003 when Nestor Kirchner was elected president, and, therefore, illustrates
the political and institutional maturity level of the country. In two years prior to Nestor, three
different presidents passed through office due to severe economic and social problems in the
country.
Macri's election to office opens the door for the government to shift away from the country's
current populist-oriented model towards more market-friendly policies aimed to bring in
investment and fresh sources of US dollars. His plan includes the removal of capital controls, a
single exchange rate, transparent economic statistics, elimination of export taxes on grains and
reduction in government subsidies. While Macri will be able to pass and implement some
reforms, Congressional, economic and social constraints will prevent immediate, broad-
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sweeping reforms.
Politically speaking, Macri's Cambiemos alliance holds only 64 of the 257 seats in the Lower
House of Congress. The United for New Alternative (UNA) front holds 31 and is the leading alley
of the government in Congress. However, UNA's leader, ex-presidential candidate Sergio Massa,
has already said that the UNA will support positive reforms being sought by the Macri
government but reserves the right to withdraw said support if UNA feels they are not in the best
interest of the people. In the Senate, Macri's party only holds 16 of the 72 seats. The fluid nature
of political party allegiance and negotiations in Argentina means that the current Congressional
composition does not guarantee political paralysis.
Macri has also inherited a lackluster economy. Central Bank reserves are about US$ 25.8 billion
and most of this money has been earmarked. The reserve's status will force Macri to assume
some behaviors similar to those of the previous government. After defaulting on US$95 billion of
debt in 2001, the country has been in a decade-long fight in courts with the hedge funds, also
known as hold-outs or 'vultures' in Argentina. Prior to assuming office Dec. 10, Macri and his
team will talk with vultures about bond payments and to Chinese officials about increasing the
value of the currency reserve swap. During the campaign, Macri said that he planned on paying
the vultures in full but will likely still need to negotiate plans for payments, especially if he does
not get a larger currency swap deal from China.
Another big challenge will be fulfilling his promise to eliminate export taxes on grains, ranging
from 20-35 percent depending on the grain, and subsidies. The high export taxes, inflation and
low commodity prices have resulted in farmers sowing less crops and withholding crop sales.
Lowering taxes would encourage more production and export. However, it also means less tax
revenue for the government in this sector. Last year, soy tax revenue alone brought in about
US$ 13.7 billion and so far this year grain exports have brought in US$ 17.6 billion in
government revenue. Macri has already warned that this tax change will be done 'little by little'.
Parallel to this the government wants to start cutting subsidies, a leading state expenditure,
during the administration's first year. Subsidy reduction comes at high political costs and means
certain social unrest. Macri will likely move slowly and cautiously when pursuing subsidy
reduction in order to not put his government at too much risk. He knows the potential social
backlash and also has a number of other reforms, such as reducing capital controls, that he can
make before tackling something so near and dear to the pocketbooks of the nation.
On the regional level, Macri's follow-up to his campaign promise to seek Venezuela's temporary
suspension from Mercosur will impact South America's definition of democratic government. On
Nov. 23 he reiterated his intentions to seek the application of Mercosur's Democracy Clause on
Venezuela at Mercosur's next meeting scheduled for Dec. 21 in Asuncion. The clause in question
comes from the Ushuaia Protocol and states that Mercosur members can temporarily suspend a
member country from the bloc when democratic order has been ruptured. The Ushuaia Protocol
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stipulates that member countries must first carry out a series of consultations with each other as
well as the member state in question. The involved parties must reach a consensus for the
application of this protocol. The ensuing Montevideo Protocol (aka Ushuaia II) also opens up the
possibility for the bloc to take more extreme measures against the violating country. Available
actions include partial or complete closing of borders, limiting trade, transportation, services and
energy. The application of additional actions is dependent on the severity of the situation as
judged by Mercosur.
Macri has publicly stated that the imprisonment of political opposition figures and the strong
participation of the Venezuelan armed forces in the government are grounds for applying the
Democracy Clause. The High General Representative of Mercosur, Florisvaldo Fier (Brazil) has
said that the clause applies when there has been a coup, which is not the case for Venezuela.
Precedence indicates that the 'rupture of democracy' is subject to interpretation. The
Democracy Clause was applied in June 2012 against Paraguay after the impeachment of then
President Fernando Lugo.
Paraguay deemed Lugo's removal from power a legal, legitimate proceeding per the country's
constitution. The rest of Mercosur called the event a parliamentary coup due to the fast pace at
which impeachment charges were brought against Lugo and his conviction. Mercosur suspended
Paraguay from the bloc until the next democratically president took power in August 2015. It
should be noted that during this period Paraguay's President was former Vice-President Federico
Franco, who stepped in to office to finish Lugo's term. Sanctions allowable under Ushuaia II were
never applied to Paraguay. Furthermore, Paraguay was able to negotiate its return to Mercosur
and in exchange for rejoining the bloc, allowed Paraguay to recover its passed turn for holding
the presidency and for approved measures passed during its absence require Paraguayan
approval as well.
Macri's call for the Democracy Clause in Venezuela reflects the broader process of defining
democracy in the region and the use of regional tools to resolve issues. Latin American countries
have spent the year trying to help mediate governance of Venezuela between the government
and opposition but have failed. Macri's moves provide yet another potential course of action for
regional governments to pressure Venezuelan politicians to regain governability and stability
through a process the region deems as democratic. Venezuelan President Nicolas Maduro has
already said that Macri should not meddle in Venezuela's internal affairs. Today's statement
comes just two weeks before Venezuela's previously delayed legislative elections. It also comes
days after the Chilean Supreme Court ruled that the Chilean Government must call upon the
Human Rights Commission of OAS to seek protection and monitoring for Venezuelan political
prisoners Leopoldo López and Daniel Ceballos. Just after the ruling, Chile's Foreign Minister
Herlado Munoz publicly emphasized that the decision came from the courts and are not
representative of a decision made by President Michelle Bachelet. Venezuela also criticized the
Chilean Court. How Macri and Mercosur pursue the application (or not) of the democracy clause
will further refine and reinforce the region's definition of what a democratic country looks like,
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the parameters for its functioning, and the extent to which other countries in the region can
intervene in domestic affairs.
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