Macri's challenge: Restore Argentina's long-lost economic power

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Crowds Gather to Support Outgoing Argentine Leader


BUENOS AIRES, Dec 10 (Reuters) - Mauricio Macri takes over as president of Argentina on Thursday, promising to harness its vast natural resources and jettison populist policies to revive an economy that has for decades fallen short of its potential.

If he gets it right, investment could stream into the country, given its Pampas grains belt, promising technology sector, highly educated work force and some of the world's juiciest shale oil deposits.

Outgoing leader Cristina Fernandez is from the populist tradition of Juan Domingo Peron, and his iconic wife Evita, who expanded the reach of the state in the 1940s.

During her eight years in power Fernandez ring-fenced Argentina with protectionist trade policies meant to bolster local industry. She increased welfare spending at a time when millions of Argentines needed help climbing out of poverty after a devastating 2002 economic crisis.

See photos from Fernandez's goodbye ceremony:

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Macri's challenge: Restore Argentina's long-lost economic power
Argentina's President Cristina Fernandez, center, speaks to supporters at Plaza de Mayo square in Buenos Aires, Argentina, Wednesday, Dec. 9, 2015. Followers of President Cristina Fernandez filled Plaza de Mayo to say goodbye on the eve of her leaving office. After 8 years in office Fernandez will be replaced by Mauricio Macri on December 10th. (AP Photo/Maria Eugenia Cerutti)
Argentina's President Cristina Fernandez waves to supporters at Plaza de Mayo in Buenos Aires, Argentina, Wednesday, Dec. 9, 2015. Followers of President Cristina Fernandez filled Plaza de Mayo to say goodbye on the eve of her leaving office. After 8 years in office Fernandez will be replaced by Mauricio Macri on December 10th. (AP Photo/Natacha Pisarenko)
Argentina President Cristina Fernandez, right, and her son Maximo Kirchner smile at supporters at Plaza de Mayo in Buenos Aires, Argentina, Wednesday, Dec. 9, 2015. Followers of President Cristina Fernandez filled Plaza de Mayo to say goodbye on the eve of her leaving office. After 8 years in office Fernandez will be replaced by Mauricio Macri on December 10th. (AP Photo/Natacha Pisarenko)
Argentine President Cristina Fernandez de Kirchner delivers a speech after unveiling a bust of the late Argentine President Nestor Kirchner, during the last day of her term of office, at the Government Palace in Buenos Aires on December 9, 2015. AFP PHOTO / JUAN MABROMATA / AFP / JUAN MABROMATA (Photo credit should read JUAN MABROMATA/AFP/Getty Images)
BUENOS AIRES, ARGENTINA - DECEMBER 9: People rally in support of Argentina's outgoing President Cristina Fernandez de Kirchner as she addresses her supporters during a farewell speech at Casa Rosada on December 09, 2015 in Buenos Aires, Argentina. (Photo by Omer Musa Targal/Anadolu Agency/Getty Images)
Supporters of Argentina's President Cristina Fernandez listen to her speech at Plaza de Mayo in Buenos Aires, Argentina, Wednesday, Dec. 9, 2015. Followers of President Cristina Fernandez filled Plaza de Mayo to say goodbye on the eve of her leaving office. After 8 years in office Fernandez will be replaced by Mauricio Macri on December 10th. (AP Photo/Natacha Pisarenko)
Supporters of Argentina's President Cristina Fernandez wear T-shirts with her image at Plaza de Mayo in Buenos Aires, Argentina, Wednesday, Dec. 9, 2015. Followers of President Cristina Fernandez filled Plaza de Mayo to say goodbye on the eve of her leaving office. After 8 years in office Fernandez will be replaced by Mauricio Macri on December 10th. (AP Photo/Natacha Pisarenko)
A follower of Argentina's President Cristina Fernandez listens to her farewell speech in front of the presidential palace in Buenos Aires, Argentina, Wednesday, Dec. 9, 2015. After eight years in office Fernandez will be replaced by Mauricio Macri on Dec. 10. (AP Photo/Ricardo Mazalan)
Supporters of Argentine President Cristina Fernandez de Kirchner attend a farewell rally on her last day in power at Government Palace in Buenos Aires on December 9, 2015. Opposition Mauricio Macri will take on office Thursday as new Argentina president. AFP PHOTO / JUAN MABROMATA / AFP / JUAN MABROMATA (Photo credit should read JUAN MABROMATA/AFP/Getty Images)
Supporters of Argentina's President Cristina Fernandez wait for her to appear at Plaza de Mayo in Buenos Aires, Argentina, Wednesday, Dec. 9, 2015. Followers of President Cristina Fernandez filled Plaza de Mayo to say goodbye on the eve of her leaving office. After 8 years in office Fernandez will be replaced by Mauricio Macri on December 10th. (AP Photo/Maria Eugenia Cerutti)
A supporter of Argentina's President Cristina Fernandez holds a sign that reads in Spanish "Huge Thanks Cristina" at Plaza de Mayo in Buenos Aires, Argentina, Wednesday, Dec. 9, 2015. Followers of President Cristina Fernandez filled Plaza de Mayo to say goodbye on the eve of her leaving office. After 8 years in office Fernandez will be replaced by Mauricio Macri on December 10th. (AP Photo/Natacha Pisarenko)
BUENOS AIRES, ARGENTINA - DECEMBER 9: A man cries as listening Argentina's outgoing President Cristina Fernandez de Kirchner's farewell speech at Casa Rosada on December 09, 2015 in Buenos Aires, Argentina. (Photo by Omer Musa Targal/Anadolu Agency/Getty Images)
Supporters of Argentina's President Cristina Fernandez hold a flag with a picture of her at Plaza de Mayo square in Buenos Aires, Argentina, Wednesday, Dec. 9, 2015. Followers of President Cristina Fernandez filled Plaza de Mayo to say goodbye on the eve of her leaving office. After 8 years in office Fernandez will be replaced by Mauricio Macri on December 10th. (AP Photo/Natacha Pisarenko)
Supporters of Argentina's President Cristina Fernandez listen to her speech at Plaza de Mayo in Buenos Aires, Argentina, Wednesday, Dec. 9, 2015. Followers of President Cristina Fernandez filled Plaza de Mayo to say goodbye on the eve of her leaving office. After 8 years in office Fernandez will be replaced by Mauricio Macri on December 10th. (AP Photo/Natacha Pisarenko)
BUENOS AIRES, ARGENTINA - DECEMBER 09: Followers of Argentina's President Cristina Fernandez display signs in support of the outgoing President of Argentina Cristina Fernandez de Kirchner during a farewell speech at Casa Rosada on December 09, 2015 in Buenos Aires, Argentina. Mauricio Macri will be sworn in as President on December 10. (Photo by Mariano Martino/LatinContent/Getty Images)
Followers of Argentina's President Cristina Fernandez listen to her farewell speech in front of the presidential palace in Buenos Aires, Argentina, Wednesday, Dec. 9, 2015. After eight years in office Fernandez will be replaced by Mauricio Macri on Dec. 10. (AP Photo/Ricardo Mazalan)
People march towards Plaza de Mayo square in Buenos Aires to attend a farewell rally for Argentine President Cristina Fernandez de Kirchner on her last day in power in Buenos Aires on December 9, 2015. AFP PHOTO / PABLO PORCIUNCULA / AFP / PABLO PORCIUNCULA (Photo credit should read PABLO PORCIUNCULA/AFP/Getty Images)
People demonstrate with signs reading 'Thank you' and 'We are all Cristina' at Plaza de Mayo square in Buenos Aires during a farewell rally for Argentine President Cristina Fernandez de Kirchner on her last day in power on December 9, 2015. Opposition Mauricio Macri will take on office Thursday as new Argentina president. AFP PHOTO / PABLO PORCIUNCULA / AFP / PABLO PORCIUNCULA (Photo credit should read PABLO PORCIUNCULA/AFP/Getty Images)
A supporters of Argentina President Cristina Fernandez holds a flag with a picture of her and her late husband and former President Nestor Kirchner at Plaza de Mayo square in Buenos Aires, Argentina, Wednesday, Dec. 9, 2015. Followers of President Cristina Fernandez filled Plaza de Mayo to say goodbye on the eve of her leaving office. After 8 years in office Fernandez will be replaced by Mauricio Macri on December 10th. (AP Photo/Natacha Pisarenko)
Chile's President Michelle Bachelet, left, shakes hands with Argentina's President-elect Mauricio Macri during a photo opportunity at La Moneda presidential palace in Santiago, Chile, Friday, Dec. 4, 2015. Macri, who won the presidential runoff election over the ruling party candidate in late November, is making his first official state visit as the next leader of Argentina. (AP Photo/Luis Hidalgo)
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Aided by high world grains prices, her first years in power saw strong economic growth. But the end of the commodities boom combined with heavy government spending and currency controls to hit growth and send inflation soaring to well above 20 percent.

Macri, a conservative businessman and mayor of Buenos Aires, won the presidential election last month by pledging to ease trade and currency controls and give the free market a chance.

"The only way to fight poverty is to create more jobs," he said, emphasizing the bigger role the private sector is to play.

The enmity between Fernandez and Macri has risen to the point where Fernandez and her allies say they would not attend Macri's inauguration.

Supporters say the changes he will bring in are long overdue, but he will have to tread carefully if he is to cut state spending to sustainable levels without pushing the troubled economy into recession.

SHARES SOARING

"With the resources this country has, there's no reason for our economy to be stalled or imports to be blocked," said Teresita Ugolini, a 70-year-old cosmetologist who remembers the open export policies that once transferred the wealth of the Pampas to the cosmopolitan boulevards of Buenos Aires.

In 1930, Argentina was the world's No. 6 economy with a gross domestic product bigger than the rest of Latin America combined, but financial mismanagement and political instability in recent decades have caused one crisis after another.

Macri wants to light a fire under exports by letting the overvalued peso currency weaken, and to settle a politically sensitive lawsuit filed by U.S. hedge funds who are demanding full repayment of debt Argentina defaulted on in 2002.

A settlement would open up much-needed international bond financing, and Macri's team knows its way around Wall Street.

Incoming finance minister Alfonso Prat-Gay was global head of foreign-exchange research at JP Morgan before leading Argentina's central bank from 2002 to 2004.

The local Merval stock index has risen 17 percent since Macri did better than expected in the first round of the presidential election and then went on to beat the candidate from Fernandez's party in a run-off.

Continued optimism depends on quick action on issues like closing a 50 percent gap between the official and black market currency exchange rates, and freeing up farm exports.

Corn and wheat planting have been stunted by export quotas meant to control local food prices. Farmers say the quotas kill profitability by over-supplying the local grains market.

Macri says he will immediately ditch the quotas. He also vows to eliminate export taxes on corn and wheat while steadily lowering a levy on soy exports.

"Macri needs to get some immediate points on the board to justify the confidence that exists on things like exchange rate unification and elimination of farm export taxes," said Gary Kleiman, of Kleiman International Consultants in Washington.

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