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Argentina’s Recurring Nightmare

How Weak Institutions Hold the Country’s Economy Back

A demonstration against Mauricio Macri's government, in Buenos Aires, September 2019 Agustín Marcarian / Reuters

A little more than two years ago, Argentine President Mauricio Macri looked like a shoo-in for reelection. Heralded at home and abroad as a skillful pro-market reformer, he led his party to victory in the midterm elections in 2017. But Macri is headed for a resounding defeat in the presidential contest slated for October 27, while his predecessor—the former President Cristina Fernández de Kirchner—is set to return to power. This time, she is running for vice president alongside her former Chief of the Cabinet of Ministers, Alberto Fernández, whom she handpicked for the top job.

Macri’s sudden fall from grace tracked the downward trajectory of the Argentine economy over the same period. At the beginning of his presidency, Macri introduced a gradual program of market-oriented reforms and even expanded some of the social policies he inherited from Fernández de Kirchner. To cover the budget shortfall, he piled on foreign debt. By the spring of 2018, however, financial markets were growing anxious about the sustainability of his reform program and foreign capital began to dry up. The Argentine peso soon collapsed and the economy fell into recession.

Macri was forced to seek a bailout from the International Monetary Fund (IMF), which approved a $57 billion loan—its largest ever—in September 2018. The government accelerated budget cuts, but the economy continued to contract. This year, GDP is projected to shrink three percent while inflation will exceed 55 percent. As markets panic over the prospect of Fernández de Kirchner’s return, Macri has had to reinstate currency controls, despite promising never to do so. He has also defaulted on some of the country’s foreign debt obligations.

Even a casual observer will recognize that Argentina has been in this situation many times before. The country has defaulted on its foreign debt no fewer than nine times since 1838. What is more, the Argentine economy has contracted for 22 of the past 58 years, an abysmal performance matched only by that of the Democratic Republic of

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