The Man Who Could Save Argentina’s Economy

Daniel Scioli is poised to take the nomination in this weekend's primary election. If he wins the presidency in October can he undo more than a decade of Kirchner damage?

BUENOS AIRES, ARGENTINA - JULY 29: Daniel Scioli, Governor of Buenos Aires and Presidential pre-candidate, smiles during a conference about local government and development at Costa Salguero Centre on July 29, 2015 in Buenos Aires, Argentina. Presidential candidate Daniel Scioli announced that in case he was elected president of Argentina next October 25th, he would create a Minister of Municipalities as former president Lula da Silva did on Brazil. (Photo by Gabriel Rossi/LatinContent/Getty Images)
BUENOS AIRES, ARGENTINA - JULY 29: Daniel Scioli, Governor of Buenos Aires and Presidential pre-candidate, smiles during a conference about local government and development at Costa Salguero Centre on July 29, 2015 in Buenos Aires, Argentina. Presidential candidate Daniel Scioli announced that in case he was elected president of Argentina next October 25th, he would create a Minister of Municipalities as former president Lula da Silva did on Brazil. (Photo by Gabriel Rossi/LatinContent/Getty Images)

Argentina’s government has had a penchant for economic nationalism ever since Néstor Kirchner took power in 2003. His wife and successor, Cristina Fernández de Kirchner, continued in her husband’s footsteps, pursuing an economic policy marked by protectionism and nationalizations that have chafed businesses both in Argentina and abroad. With Fernández de Kirchner constitutionally barred from seeking a third term, many business leaders hope that elections this October will bring about a new government that will curb endemic inflation (over 30 percent last year) and lift currency controls and export taxes.

Seemingly standing in the way of such change is Daniel Scioli, the current provincial governor of Buenos Aires and Fernández de Kirchner’s hand-picked successor. Scioli is the frontrunner according to the recent opinion polls in what appears to be a three-way race with Mauricio Macri, the center-right mayor of Buenos Aires, and Sergio Massa, an ally turned foe of Fernández. The three will face their first electoral test on Aug. 9, when Argentines vote in national primaries. The results will measure the strength of each candidate as they look toward the presidency. None of their campaigns will be more closely watched than that of Scioli, the man charged, somewhat reluctantly, by Fernández with maintaining her (and her husband’s) legacy. That support and his track record as an effective, if uncharismatic, governor in Buenos Aires has pushed Scioli to the top of the polls but also exposes him to questions about how closely he will adhere to the policies of his predecessors rather than liberalize a creaking economy.

As a candidate, Scioli has signalled that he intends to maintain the economic status quo. He has repeatedly praised Fernández’s legacy and has promised broad policy continuity. He has made rhetorical overtures to La Cámpora, a militant arm of younger members of the Peronist political movement headed by Fernández’s son Máximo Kirchner, and has suggested that they might be part of his government. And perhaps most tellingly, Scioli announced Fernández’s closest legal and political advisor, Carlos Zannini, as his running mate.

Zannini’s addition to the Scioli ticket came as an unpleasant shock to some in Buenos Aires’ business circles who are eager for change. It suggests that Fernández wishes to continue to pull the strings in a future Scioli presidency — and most importantly, that her much-criticized economic policies will remain in place. But those resigned to four more years of the same failed Kirchner policies don’t appreciate Scioli’s personal history and the extent to which, were he to be elected, Argentina’s presidential system of government would give him broad latitude to chart his own course, one that might prove more friendly to business and the economy than his predecessor’s.

The disparity between Scioli’s track record of economic pragmatism as governor and the more heterodox signals he’s sending from the campaign trail reflect his own challenges ahead of the October vote. While he has virtually secured the ruling party’s ticket, he has yet to win the hearts and minds of Fernández’s constituency ahead of the party primaries on Sunday — much less the support of the Peronist political machinery. Moreover, Scioli’s relationship with Fernández is lukewarm at best, partially because of ideological differences. Scioli’s partnership with the Kirchners was sustained by political expediency rather than genuine affection. The governor has never been seen as a Kirchner insider; in particular, Kirchnerite hard-liners have often held him at arm’s length over disagreements on economic policy. But Scioli provided political traction in the pivotal Buenos Aires province, and in exchange he ensured his province received a steady flow of funds from the central government.

Scioli, a former powerboat racer who parlayed boating championships into a political career, was Néstor Kirchner’s vice president between 2003 and 2007. He has largely sided with the Kirchners in most initiatives since they first came to power, including the nationalization of oil company YPF in 2012 and their attempt to increase government influence over the judiciary. But his record in politics also suggests a more moderate and pragmatic profile than Fernández, one that prizes prudent economic management. For example, he raised taxes and deferred wages in order to tackle the fiscal deficit of Buenos Aires province, which he has run since 2007. He also openly clashed with Fernández for failing to transfer fiscal revenues to provincial governments in 2012. Tellingly, his economic team speaks much more freely about lifting export taxes on key agricultural goods, curbing inflation, and lifting currency controls.

Last but not least, Scioli is not immune to broader regional trends. Heterodox economic policies like Fernández’s are in decline across Latin America. In Brazil, President Dilma Rousseff is engaged in an austerity plan to rebalance public finances; the current administration in Brasília is also eager to liberalize trade and reach agreements with key partners such as the EU. As other countries liberalize, keeping Argentina locked in protectionism would isolate the country even within regional trade bloc Mercosur. Scioli surely sees the writing on the wall.

But if he wins the presidency in October, will Scioli be able to turn the state around after more than a decade of Kirchnerite rule? As a matter of fact, he will. While strong presidencies are the norm rather than the exception throughout Latin America, Argentina’s executive branch is particularly powerful. Take fiscal federalism, for example: Local governments are highly dependent on fiscal revenues from Buenos Aires. The discretionary distribution of funds to provinces therefore gives the president a tool to shore up support among governors and other political barons. The fact that legislators in Congress tend to follow their provincial political bosses only increases the president’s ability to push along policies. Other options in the president’s toolkit include political appointments in ministries, regulatory agencies, and state-owned firms; and the allocation of public funds. The systematic underestimation of budget in Congress allows governments to increase discretionary spending and reward allies. Should Scioli wish to challenge Fernández’s legacy, he will have plenty of latitude to do so. Even though Scioli’s posturing on the campaign trail suggests a commitment to the status quo, the majority of Argentines would like to see some change with this election. Scioli is a savvy-enough politician to recognize this, and he will likely tack to the right once in office. But first he must win the election, and that requires shoring up support among his party’s base.

Keeping the party base content — and in power — would certainly make governing easier in a Scioli presidency. But even in the case of a minority government, the president can still wield considerable power by issuing Necessity and Urgency Decrees. When the opposition took control of Congress between 2009 and 2011, Fernández used the decrees to increase public spending, and even to sack a disgruntled Central Bank president. Néstor Kirchner and former President Carlos Menem were also profligate in the use of the decrees throughout their mandates.

Although Fernández continues to cast a long shadow over Argentine politics, the country’s strong presidency will nevertheless give her successor a chance to govern with some degree of independence. Whether Scioli as president would actually break from his predecessor’s legacy remains an open question, but there’s certainly evidence that he would be so inclined. Even still, changing the country’s political inertia is no small task. It would require strong conviction and considerable political skill. Scioli’s skill is apparent; the extent of his determination may depend on Argentina’s economic fortunes. A deterioration in the country’s economic position could push Scioli into making a more decisive break with the past.

Should he have the will to buck Fernández, he should be able to. The Kirchners themselves are an example of such possibility: despite being elected in 2003 with a mere 23 percent of the vote, Néstor Kirchner was able to cast off the mantle of his political boss — Eduardo Duhalde — to sow the seeds of Argentina’s most powerful political movement today. If Scioli can achieve similar autonomy, Argentina’s private sector could be in for a pleasant surprise. Should the future administration take a gradual approach to curb inflation, ease currency controls, and lift protectionist measures that have hurt the Argentine economy, the local business environment could feel the effects within a year.

Photo credit: Gabriel Rossi/LatinContent/Getty Images

Thomaz Favaro is a São Paulo-based senior analyst at Control Risks, the global risk consultancy.

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