News and a commentary by John Gallagher
Javier Milei was inaugurated as Argentina’s new president on Sunday, Dec. 10.
The Argentine presidential election has been the focus of the Latin America political scene over the last several months. Milei, a right-wing libertarian candidate, won the recent runoff election last month by a surprisingly strong 12-point victory over Sergio Massa, the Finance Minister of incumbent president Alberto Fernández. Before the last round of voting, election polls had been too close to call.
But pollsters should not have been too shocked. The ruling government candidate was Finance Minister Sergio Massa – who was largely responsible for the country’s nearly 150% annual price inflation, the negative foreign currency reserves in the Argentine Central Bank, and multiple exchange rates with the grey market Dollar floating between 1050-1200 pesos compared to the official rate of 370.
According to government statistics, more than 40% of the population are living in poverty.
Has the electorate moved right or are voters protesting against the same politicians failing to tackle the country’s real problems? Interestingly, some opinion polls indicate that Milei benefited from the protest vote from the poorer echelons of society who actually profit from government subsidies that Milei has indicated will be cut.
Milei says that he will announce many of his new policies the week after inauguration day. Before that, let’s look at how the new government might impact Argentina’s travel retail business.
Despite the severe economic problems, the Argentine middle classes have continued to travel and international tourists have journeyed to Argentina to take advantage of the undervalued peso. The latest passenger traffic figures from ANAC, the Argentine Civil Aviation Authority, show that the international traffic reached 1,045 million in November, up 26.9% on the same month last year, and for the first time since the recovery started, were 1% above the same month in 2019.
Flights to the USA and Europe have been full for the last few months and with the southern hemisphere high season beginning, the high air traffic levels are expected to continue. The question is whether fliers will be foreign residents coming to spend vacation time in Argentina and take advantage of favorable exchange rates or will they be Argentine travelers taking an overseas trip before the new president implements economic adjustments that need to happen as soon as possible to avoid further damage, hyperinflation and poverty.
In the short-term, international air traffic figures will remain strong. But what will be the impact when the devaluation takes place as predicted? Given that foreign exchange is not available at the official rates (residents are allowed to buy US$200 per month – but the system is difficult and not always available), many travelers are buying USD on the grey market and using credit cards whose transactions are highly taxed, with real exchange rates being close to the grey market rates. We cannot see numbers falling in the short term, but this will depend on the economic adjustments when they are announced.
In an interesting development, President-elect Milei has confirmed two of his cabinet ministers who have ties to the travel retail business. Nicholas Posse will be the Cabinet Chief controlling the other ministers. Posse was the CEO of InterBaires from 2007 until 2009 – he then moved to Corporacion America HQ to head up the Aconcagua Bi-oceanic Corridor project which intends to link Argentine and Chile with a 52km rail tunnel. After that, Posse was involved with the Palomar Airport Project, Buenos Aires’ third airport especially for low-cost airlines, which was inaugurated by the Macri government in 2017 and closed by the current government when they assumed power in 2019. More recently, and prior to his involvement with the Milei election campaign, Posse headed up the Southern Argentine Business Unit of Aeropuertos Argentinos 2000.
The Minister of the Interior will be Guillermo Francos, who has held several executive director’s posts in AA2000 and Corporacion America but none of them connected directly to the commercial side of travel retail. Francos left his post as Argentine representative at the InterAmerican Development Bank to join the Milei election campaign and has been one of the leading spokespeople for Milei following the election victory.
Stay tuned for more information as it unfolds.
