Inflation casts long shadow as Argentina’s Macri tries to fix economy

BUENOS AIRES, (Reuters) – Days into his presidency, Mauricio Macri faces his first big threats as he seeks to fix Argentina’s ailing economy: inflation and recession.

In his first policy moves since taking office on Dec. 10, the free markets advocate made good on his promises to eliminate capital controls and cut hefty export taxes.

But floating the peso triggered an immediate 26.5 percent devaluation and by making imported goods more expensive it will put further pressure on inflation, which already stands at well above 20 percent.

Economists expect inflation to accelerate to 35 percent in 2016, eating into Argentines purchasing power and dampening spending. They predict the economy will contract in the first months of the year, although it could then pick up again if new investment kicks in and a cheaper peso helps exporters.

Argentines knew the peso was being held artificially strong and many believe the measures are needed, but even Macri’s own supporters are worried.

“It is going to hurt us all,” said Cristina Lopez, 70, who works as a secretary to supplement a pension that she says is not enough to get by on. “I went to get medicine yesterday and it had gone up 30-40 percent already.”

Lopez voted for Macri’s center-right “Let’s Change” alliance and blames the poor economy on 12 years of populist policies.

“They left us in a bad situation,” she said of the previous government of leftist Cristina Fernandez, who imposed currency and trade controls in Latin America’s No 3 economy in a bid to boost domestic consumption and foster national industries.

As Macri dismantles those policies, he risks tipping the economy into recession and stirring unrest from labor unions linked to the Peronist party he has just turfed out of power.

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