Macri Survives 'Hot Little Summer' as Argentines Keep Their Cool

(Bloomberg) -- Buenos Aires looks different, but not in the way I expected.

Given the dismal year in 2018, when the peso lost half its value, the economy fell back into recession and the government had to seek a record bailout from the International Monetary Fund, I was prepared to see more gloom, anger and desperation on the streets.

Instead, what surprised me most during a three-week visit to the city I called home for four years was the relatively few signs of protests and social tension, as well as the major infrastructure projects plowing forward at full speed. While they’re not yet reflected in construction figures (-16 percent y/y) or unemployment (9 percent), the government is building an underground highway through downtown Buenos Aires and it’s lifting railway lines to free up traffic at an opportune time for crisis-ravaged President Mauricio Macri.

If the time frames are to be believed, and they seem credible based on observable progress and the swarm of activity at work sites, Macri and his ministers may be cutting the inaugural ribbon on several of these gifts to the city ahead of what looks to be a tough re-election bid in October. He’s already able to take credit for recently completed centralized bus lanes that have helped relieve traffic and new metro stations.

While it’s a tradition in many places to pave roads and inaugurate public works ahead of electoral events, these projects are particularly timely for Macri given the economic malaise. He’s seeking to become the first non-Peronist to finish a term since 1928 -- before the birth of Peronism. Nearly half of the electorate live in the city or province of Buenos Aires.

Sure, Argentines will face utility price increases of 30-something percent in March, as well as the possibility that there’s another run on the currency ahead of the vote, in which Macri is expected to face former President Cristina Fernandez de Kirchner. But given the extent of the crisis, I was surprised there weren’t massive daily protests in the season commonly referred to as “the hot little summer,” when humidity, high heat, blackouts and demonstrations are often as much a part of Christmas as the roast on the table.

Television news, which in recent months obsessively flashed the exchange rate throughout the day, has dropped the practice as the peso stabilized and the country’s bonds rebounded to among the world’s best performers in January. Now much of the programming focuses on a perceived increase in crime, which works to the center-right government’s favor as a campaign issue, with the opposition less willing to take tough stances.

To be sure, the middle class especially is suffering the effects of the recession and economic crisis with inflation last year likely to have been about 48 percent, home mortgages drying up and interest rates among the highest in the world. Taxi cabs roam the streets of Buenos Aires without many takers beyond tourists who are loving the devalued peso. Discount supermarkets are full of people trading in returnable Coca-Cola and beer bottles to save money.

Macri Survives 'Hot Little Summer' as Argentines Keep Their Cool

For locals to gain confidence, the government needs to find a way for consumers to preserve their purchasing power after a dismal 2018, according to BTG Pactual strategist Alejo Costa.

“Public works influence a person’s decision and they’re seen as being apolitical since they benefit everyone,” Costa said from the Argentine capital. “That’s not to say that they don’t also bring disruptions, but it’s part of the demands from voters including having a decent wage.”

This year looks to be better, with inflation forecast to slow to about 28 percent, and economic growth may return in the second half. Add that relative improvement to the power of the incumbent and the shiny new infrastructure projects -- including housing blocs in the sprawling Villa 31 slum -- and it isn’t hard to imagine a path to re-election.

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