Argentina will elect a new president Oct. 25, marking the end of 12 years of rule under the husband-and-wife presidential team of Nestor Kirchner and Cristina Fernandez de Kirchner. But for the next president, the coming four years will be a struggle against Argentina's economic limitations. Whether the next president is ruling party candidate Daniel Scioli or right-wing challenger Mauricio Macri, he will inherit a nation in which exports are rapidly collapsing and where dollars to fund crucial imports are in short supply. Investors are wary of Argentina because the country has yet to settle with creditors demanding payment on defaulted bonds from 2001 — and consequently is again in default to a group of creditors colloquially known as holdouts. Hefty foreign debt payments, falling exports and high spending have shrunk Argentina's foreign reserves by more than 30 percent in four years. Faced with a dwindling supply of funds, the next president will likely try to make good with foreign debtors, convince investors that Argentina is a safe bet and remove barriers to economic growth.
And yet, in some ways the Argentine predicament seems almost avoidable. Geopolitically speaking, Argentina's central plains — where the bulk of its population is located — are a relative oasis of temperate weather and excellent farmland away from South America's jagged peaks and thick rainforests. Throughout the 19th and 20th centuries, successive waves of immigrants settled Argentina, and persistent social strife from neglected populations (as in Peru, Bolivia, Mexico and elsewhere) was largely avoided. Where other countries struggled to dominate their rural hinterland, Argentina was able to become a coherent state relatively quickly. In short, some of the pitfalls that affect other Latin American states simply weren't factors in Argentina's development.
But despite its prime location, Argentina still faces a major roadblock endemic to Latin American economic growth: a lack of capital. Like everyone else on the continent, Argentina's economic growth has been dictated by boom-and-bust cycles as economies took shape around commodity exports — in Argentina's case, grains and beef — during times of high international demand. To overcome this reliance on commodities, Argentina banded together with Brazil, Uruguay and several other South American nations in the protectionist Common Market of the South (referred to by the Spanish acronym Mercosur). Sheltered behind high tariffs, Argentina developed its domestic industries and created bustling cross-border trade with Brazil, though that trade remained at the mercy of fluctuations in Brazilian demand. Brazil is again in the depths of economic recession, and Argentina's other major trading partner, China, is experiencing slowing demand growth for Argentine soybeans. With Argentina's top two trading partners having faced economic trouble for several years now, Mercosur seems more of a straitjacket. Argentina cannot quickly find alternative foreign markets, and given its lack of dollars to pay for imports, removing existing barriers would drain its reserves rapidly.
Economic measures that would cut public spending and resolve trade barriers were at odds with the Kirchner/Fernandez government's plans. Those administrations rose to power on the promise of maintaining the public's well-being, and so they decided to leave such measures largely to the next government.
This brings us to the subject of the presidential election. Although the Kirchner/Fernandez administrations could afford to be confrontational against private firms and the creditors, the next president will have far fewer options. The choice for Scioli or Macri is clear: Reach a deal with the holdouts and encourage investments, or face an economic crisis later. Argentina's restrictive import and export policies, both created by the Kirchner/Fernandez administrations to limit capital outflow, could be altered by a new administration to encourage firms to come into the country. The next administration will also likely refrain from making major expropriations and interfering too much in private enterprise through price controls. Finally, the new president will work to attract further investments into Argentina's Vaca Muerta shale field, since reversing the country's energy deficit will be a priority. In short, a new administration will likely try to assure investors that it is not a threat — largely because Argentina's future economic stability depends on access to foreign capital.
The coming four years will be crucial for Argentina, but the next president is in an unenviable position. There will be no quick road to improving Argentina's economy, but the country has few options for obtaining hard currency in the short term. And one of those options is a potentially politically costly deal with foreign creditors. Even so, the new administration has the potential to bring about a watershed moment in Argentine history, between the lingering effects of financial default and a possibly brighter economic future. Regardless of whether it is Scioli or Macri who is president after Oct. 25, the actions taken by the next government could be the beginning of that future.
