From December 16 to December 21 of this year, I traveled to Buenos Aires, Argentina to speak to defense officials and others regarding the new direction in which President Mauricio Macri is taking the country. In his first year in office, President Macri has made significant administrative and legislative changes to move Argentina off the destructive domestic and international paths pursued by his predecessors, Cristina Fernández de Kirchner and Néstor Kirchner. Yet in the short term, President Macri’s reforms have generated painful consequences, including dramatic increases in utility costs, while the economic benefits of the new course have been slow to materialize.
In their first year, without a legislative majority in either house of the Argentine Congress, Macri and his Republican Proposal party (PRO) passed almost 100 new laws, issued numerous decrees in areas ranging from national security to energy to exchange rate policy, and restored the country’s access to international credit markets after its 2001 debt default. President Macri also overhauled the leadership of the country’s bureaucracies, from the military and intelligence organizations to the customs agency, as well as replaced the leadership of key bureaucracies. Perhaps most controversially, he ended the previous government’s subsidies to public utilities, producing rate increases of 300-500 percent in water, electricity and gas, generating hardship for both individual consumers and small and medium businesses, with further increases expected in 2017. He also eliminated exchange rate controls, leading the Argentine peso to rapidly devalue from 9.6 pesos to the dollar to over 16 pesos, significantly reducing the purchasing power of average Argentines. Amidst the controversy over layoffs of government workers and utility price increases, the Argentine economy contracted 2 percent in 2016, with 40 percent inflation, while in Buenos Aires and other major Argentine cities, the nation continues to suffer from a drug epidemic and associated high crime rates.
On the revenue side, the Macri administration has moved to reduce or eliminate taxes on agricultural and mineral exports that had been increasingly been undercutting important foreign currency-earning sectors. Yet, while exports of Argentine beef began to rise in 2016 after years of declining herds, the time required to raise livestock means that the nation’s agricultural sector will require years to recover from the disincentives to production of the previous government. Reflecting tensions stemming from Argentina’s lagging economic recovery and budget difficulties, Finance Minister Alfonso Prat-Gay resigned in January 2017.
Why progress matters
While President Macri’s policies are widely regarded internationally as moving the country in the right direction, his administration is in a race against time to produce tangible results for the Argentine people before October 2017 legislative elections. If he loses support in those elections, it could paralyze his legislative agenda for the rest of his term and give the populist-socialist “Frente para Victoria” faction of the country’s long dominant Peronist party, led by former President Cristina Fernández de Kirchner, the opportunity to make a comeback in 2019.
It is strongly in the interest of the United States, as well as the people of Argentina and the region, that his administration succeeds.
With respect to security, Argentina has become an important narcotics transit country. Criminal groups smuggle drugs across the northern border with Bolivia, via highway to the nation’s principal river ports such as Rosario and Buenos Aires, and from there, on commercial ships to Africa and Europe. Alternatively, drugs are shipped from near Ciudad del Este, Paraguay, to the river ports via barge down the Paraguay and Paraná rivers, whose status as international waterways makes inspection and control difficult. In the process, those hub ports, particularly Rosario, have become some of the most dangerous areas in the country, although enforcement by the Argentine government has driven narcotraffickers to occasionally use more southern ports such as Mar del Plata and Bahia Blanca, as well as the nearby port of Montevideo, Uruguay, whose government has less resources to combat the challenges presented by narcotraffickers.
The movement of narcotics through the country has also created a serious drug consumption problem in major urban areas such as Buenos Aires, including the relatively cheap and lethal cocaine-like drug “paco,” with associated criminal and public health challenges.
Recognizing the challenge from drug consumption and transit, the incoming Macri administration declared a “national drug emergency” with presidential decree 228. Its provisions include authorizing the military to guard the national airspace against incursions by narcoflights in support of the government campaign to secure the northern maritime and land border and airspace against narcotransits, “Operation Northern Shield.” Using the military in the war against drugs has caused some discomfort within the institution, both because the 1988 defense law forbids military involvement in internal affairs, and also because the armed forces, after years of inadequate budgets, are hard pressed to maintain the operational tempo of patrol flights, radar operation and other activities required to support the mission. A December 2016 request by the Ministry of National Security for a new decree—if approved—will use the military to protect critical infrastructure, freeing up about 1,500 of Argentina’s Gendarmerie military police to patrol urban areas. But the decree will further increase resource pressures on the armed forces and deepen their discomfort with their internal security role.
Beyond the contributions of the armed forces, however, the government has taken other important steps to control the national territory against drug traffickers. It is, for example, creating a series of interagency task forces in the north of the country where the drug flows are most concentrated. The first, located in the province of Salta, began operation in 2016, with a second, in Misiones, to start functioning this year. With the support of the U.S. Drug Enforcement Agency (DEA), it is also establishing five interagency fusion centers, with the first, located in Jujuy, to begin operating in 2017.
Another important landmark in Argentina’s fight against drugs is the renewed cooperation, beginning in March 2016, between the U.S. Treasury Department’s Financial Crimes Enforcement Network (FINCEN), and Argentina’s Financial Intelligence Unit, to pursue money laundering by narcotraffickers and other criminal actors.
Resetting the Kirchner-era relations with China and Russia
With respect to foreign policy, President Macri has been pragmatic in Argentina’s foreign relations and worked to restore the country’s reputation as a responsible and capable member of the international community. In the process, he has created visible changes in Argentina’s relationship with extra-hemispheric actors, the United States, its neighbors in the region, and multilateral institutions.
Overall, the orientation of the Macri administration has been more pragmatic and less ideological than his predecessor, open to doing business and maintaining relations with a broad range of states, but with a distinctly warmer orientation toward the United States, and a more critical posture toward China, Russia and the Bolivarian Socialist countries of the Bolivarian Alliance of the Peoples of the Americas (ALBA).
With respect to China, the incoming Macri regime suspended, then approved with minor adjustments, the majority of Chinese projects set in motion under his predecessor, although several key initiatives have run into problems. The Macri government, for example, ultimately approved Chinese operation of a space radar facility in Neuquén, after securing a promise from the Chinese government that the facility would not be used for military purposes. Argentina also agreed to continue the construction of two new nuclear reactors in Argentina’s Atucha complex, as well as the modernization of the Belgrano-Cargas railroad. On the other hand, the Argentine government blocked Chinese construction of two major hydroelectric facilities on the Santa Cruz River on environmental grounds, and investigated the construction of a gas pipeline in Cordoba over allegations of dumping by the Chinese tube supplier.
In the military realm, literally all of the major arms purchases from China pursued under Macri’s predecessor have been shelved, including the FC-1 fighter, which was regarded as too expensive and potentially concealing important technical defects, the Z-9 helicopter, considered an unlicensed copy of the French Dauphin, the P-18 patrol ship, considered to have insufficient endurance for patrolling off the long Argentine coastline, as well as the VN-1 armored personnel carrier.
Russia has arguably fared even more poorly than China under the Macri regime. The relationship began badly when the incoming government announced that Russia Today, widely considered a propaganda vehicle of the Russian state, would be taken off the air in Argentina, although Russia and Argentina subsequently worked out an agreement for it to continue broadcasting. The Argentine government also cast in doubt Russia’s major infrastructure project in the country, the Chihuido hydroelectric facility, due to a dispute over the interest rate associated with the Russia-provided financing. The controversial renting of a Russian ship to support Argentina’s scientific facilities in Antarctica was suspended over a problem with the bidding process, and even the purchase of additional Russian Mi-17 helicopters was put into question. Despite a trip by Argentina’s Defense Minister Julio Martinez to Russia in September 2016 that included a tour of a Russian military factory manufacturing armored vehicles, Russian equipment is no longer being seriously considered in any of Argentina’s major acquisition programs.
With respect to other extra-hemispheric actors, President Macri has demonstrated, through his reception of Japanese Prime Minister Shinzo Abe in Buenos Aires and his conversations with the heads of India, South Korea and Australia at the G-20 summit in Hangzhou, China, Argentina’s interest in diversifying its partnerships in Asia beyond just the Chinese.
With respect to the U.S., by late 2016, security and other forms of cooperation were expanding in a positive direction. Although the sale to Argentina of U.S. T-6 Texan training aircraft was cut back from 24 units to 12 for budgetary reasons, other programs were proceeding apace, including upgrades to Argentina’s fleet of U.S.-built M113 tracked vehicles, as well as training and professional military education collaboration, including billets for Argentine security forces in the U.S. Joint Interagency Task Force South facility in Key West, Argentine naval officers at the National War College and the naming of the Georgia National Guard to support Argentina as its new state partner.
With respect to neighbors in the region, the Macri government has clearly taken a more critical stance toward Venezuela and other ALBA players, including supporting the December 1, 2016 suspension of Venezuela from Mercosur for not adjusting its laws to comply with its commitments upon joining the organization. Macri also reportedly has a good relationship with his Brazilian counterpart, President Michel Temer, although the latter’s own domestic problems have impeded the two leaders from overtly strengthening collaboration between the two nations. With respect to Uruguay, despite ideological differences between Macri and his Uruguayan counterpart, President Tabaré Vázquez, the latter is reportedly much happier to deal with Macri than with his predecessors, who drove a nasty dispute between the two countries over the construction of a paper mill at Frey Bentos, on the Uruguay river dividing the two countries. Although Macri also has ideological differences with his Chilean counterpart, President Michelle Bachelet, the two reportedly have good relations. This could improve further if businessman Sebastián Piñera returns to the Chilean presidency in the November 2017 elections, as some expect.
With respect to regional bodies, President Macri has clearly de-prioritized Argentina’s role in regional organizations emphasized by his predecessor, including the Union of South American Republics (UNASUR) and the Community of Latin American and Caribbean States (CELAC), that exclude the U.S., relegating relations with the two organizations to the office of his vice-president. President Macri has further shown a positive disposition toward working with the Organization of American States (OAS) and other organs of the Inter-American system, including an interest in expanding the participation of Argentine military officers in the Inter-American Defense College. Yet, given that the Organization of American States functions on consensus and the residual strength of the ALBA states and the Caribbean states that are economically tied to Venezuela, it is not clear that President Macri’s support alone will be sufficient to reinvigorate the role of the OAS in regional affairs.
Following the end of the Cold War, the United States arguably squandered an important opportunity by not doing more to ensure the success of governments that placed their faith in free markets, rule of law and transparent, democratic governance. As U.S. President-elect Donald Trump takes office on January 20 and looks south to his former business and golf partner Mauricio Macri in Argentina, he should recognize that it is in America’s interests, as well as Argentina’s, to provide the modest support necessary to ensure that President Macri succeeds in the difficult but necessary journey on which he is engaged.
The author is research professor for Latin America at the U.S. Army War College. The views expressed in this article are strictly his own. The author would like to thank Fabian Calle, Andrei Serbin Pont, BG Gustavo Javier Vidal, Juan Calvo, Leonardo Orlando, Guillermo Rodriguez Conte, Jorge Malena, Augustin Romero, Martin Verrier Pedro de la Fuente, Nicholas Rodriguez and others who could not be mentioned here for their inputs into this article.