Home News Could the Resignation of Argentina’s Foreign Minister Hurt the Country’s Recovery?

Could the Resignation of Argentina’s Foreign Minister Hurt the Country’s Recovery?

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Written By: Alessandra Yuan – Forex Focus

Argentine Foreign Minister Susana Malcorra has resigned from her post in President Mauricio Macri’s government. The surprise resignation from the former United Nations official comes at a critical juncture for the Argentine government, which has been in the throes of an economic recovery—the performance of which has been teetering on a knife-edge. The official reason for the resignation is Malcorra’s desire to be closer to her family, and she will be moving immediately to Madrid, Spain.

While she will not be compensated for doing so, Malcorra will reportedly stay on as an advisor to the government and the new foreign minister. The man replacing her, Jorge Faurie, is currently the Argentine ambassador to France. Malcorra was lauded for her exceptional management of foreign affairs for Argentina as the Macri government picked apart the protectionist orders of former Peronist President Cristina Elisabet Fernández de Kirchner.

Malcorra’s primary efforts within Mauricio Macri’s administration were to facilitate a rapprochement between Argentina and the United States—along with other Western countries—to coordinate a deal with the country’s creditors; it was a saga that had continued for more than a decade.

Macri came to office in 2015 on a platform of economic recovery by undoing much of the former administration’s protectionist policies and government subsidies that hindered performance and limited economic growth. A shock-therapy approach was launched to induce economic growth and undo much of the structural damage inflicted by the Kirchner government.

More importantly, Macri, the center-right candidate, signalled a shift toward more market-friendly, center-right governments across South America—most notably in Argentina’s Mercosur counterpart, Brazil, which saw centre-right Michel Temer inherit the presidency following the impeachment of former President Dilma Rousseff. Like Brazil, Argentina’s new government ushered in a slate of market-friendly policies to reinvigorate the economy.

Malcorra played a key role in this initiative as she was almost consistently shuttling to meet various international trade partners. She also defined Argentina’s position, alongside Macri, against the increasingly autocratic Venezuelan regime, which had recently been integrated into the Mercosur trade bloc but ran afoul of domestic protestors and international critics. As a critical representative of Argentina and Mercosur, Malcorra had also been heavily involved in the Mercosur-European Union trade negotiations. Argentina represents an important economic power in South America, as well as a key ally in aligning the rest of the bloc with any potential deal. Malcorra’s business savvy and diplomatic skill invoked confidence from negotiators and external investors—greatly boosting international interest in Argentine markets.

Thus, Malcorra’s resignation has the potential to severely disrupt the recovery efforts in Argentina under Mauricio Macri as investors and international partners may sense instability or discord within the Argentine government. A drop in investor confidence or a drastic shift in Argentina’s approach to international relations could derail the underlying gains that Macri’s shock therapy has brought to Argentina. It’s important to note that Macri and Malcorra could strike a deal with Argentina’s holdout creditors in short order, whereas the Kirchner government struggled for over a decade.

Yet fears of instability are not unfounded. Malcorra is Macri’s second minister to resign—the first being former Finance Minister Alfonso Prat-Gay, who resigned in 2015—and the resignation of a key member of his government does not help to shake off doubts. To add to Macri’s woes are complaints from Argentine voters who are suffering increased living costs and fewer services from his shock therapy as he repeals many of the bloated subsidies dispensed by his predecessor.

Moreover, Malcorra’s replacement, Jorge Faurie, a graduate of Argentina’s Foreign Service Institute (ISEN) and former deputy foreign minister in the Peronist Carlos Ruckauf’s government, will most likely look to put his stamp on Argentine foreign affairs. While Macri insists that Faurie is willing to uphold continuity, there are already reports that there may be a power struggle within the Argentine foreign ministry. While Faurie refusing to toe the party line may cause some instability, the presence of a power struggle within the ministry may cause even more damage and further doubt about the country’s performance. This concern grows when one considers the pending assignments that Faurie will inherit.

Three main foreign-affairs issues will await Faurie: the strategy concerning Venezuela; Argentina’s planned hosting of both the G20 and the WTO (World Trade Organization) summits; and the EU-Mercosur trade negotiations.

Starting with Venezuela: President Macri and his government have denounced the actions of Venezuelan President Nicolás Maduro. They join critics across the Western Hemisphere who are calling for action, ranging from a new round of elections to Maduro’s resignation and the potential expulsion of Venezuela from the Organization of American States. Macri’s condemnation of Maduro’s actions was one of his first actions as president, and Faurie is unlikely to change the country’s stance on this issue.

Argentina has been working diligently to prepare for the WTO ministerial meeting in December and for the country to chair the G20 in 2018—the first South American country to do both. Malcorra was instrumental in organizing both endeavors, and Faurie is likely to continue with those preparations with little alterations to their plans. Continuity in this regard is expected.

Lastly are the EU-Mercosur trade negotiations. The talks have been stalled for some time and help to show the faults in customs unions compared to free-trade areas. Inclusion of agricultural products has been a key issue slowing negotiations—particularly from the French delegation. As the French government views Faurie as an ally, this may help to push along the negotiations and bring about the much-negotiated EU-Mercosur free-trade agreement. While Mercosur may lose out on agricultural goods, the final agreement on a deal could cause a boon in trade, bolstering the economy.

While numerous factors could derail Argentina’s recovery, Malcorra’s resignation seems to have been handled well by the government. The fragile gains to the Argentine economy appear to be safe for the time being. Only time will dictate whether new external forces will shift the country’s performance off its teetering perch.

 

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