A worker looks through the window of a bureau de change which shows US currency value in Buenos Aires on December 17, 2015. (EITAN ABRAMOVICH/AFP/Getty Images)

For many Argentines, this was not a happy holiday season. On Dec. 17, holiday shopping became much more expensive. That’s when the country’s newly elected centrist president, Mauricio Macri, followed through on his campaign promise to dismantle the country’s stringent exchange controls. Argentines were now free to sell their country’s currency, the peso, in exchange for dollars.

And sell they did—so much that the value of the peso plunged by 30 percent against the U.S. dollar. That meant prices of imported goods shot up.

Liberalizing currency in hard times is risky business

Macri’s liberalization was risky. There is no consensus on whether developing countries are better off with capital controls or without them. “Capital controls” are restrictions on cross-border flows of money and financial assets. Argentina’s restrictions on buying foreign currencies, in place until Dec. 17, were a relatively extreme type of capital control.

But many economists agree that it is dangerous to remove capital controls when macroeconomic imbalances persist – that is, when inflation is high, the government runs budget deficits, the current account balance is negative, and the central bank has little foreign currency in its coffers. Presentday Argentina features each of these factors.

This is why most countries, historically, have removed capital controls during boom periods, not during hard economic times. In fact, opponents of rapid currency liberalization argued that the move would increase economic uncertainty, lower investment, and “destroy the salary of all the population”.

Currency crashes correlate with falls from power

Aside from the economic risks, “Macri’s devaluation,” as the opposition Peronists have taken to calling the event, could be politically costly. Macri was elected by a slim majority, and will face hostile Peronist opposition in the Argentine Congress.

According to statistical research, currency crashes like the one that Argentina just experienced double the likelihood that political leaders in developing countries will fall from power. In fact, Argentina’s last major currency devaluation, in late December 2001, generated massive social and political instability. With the peso’s crash came the near-collapse of the country’s financial system and the largest sovereign default to that point in history. Amid widespread protests, the country’s president at the time, Fernando De la Rúa, had to escape from the Presidential palace by helicopter—a memory that remains vivid for many Argentines.

So why did Macri do it?

The short answer is electoral politics. Dropping the controls was very much in the interest of the voters who threw their support behind Macri and his upstart Cambiemos party.

We surveyed Argentines about capital controls and politics. Here’s what we found

New survey evidence that we collected in Argentina during the early stages of the country’s presidential election sheds light on the political calculus underlying the peso’s recent collapse. In the summer of 2015 we fielded a series of survey questions in the nationally representative Argentine Panel Election Study. We wanted to learn more about who supported and who opposed the currency restrictions put in place under the previous Peronist government led by Cristina Fernández de Kirchner. Below are the notable findings.

Argentines involved with the banking system opposed the capital controls

One of the most striking findings was the tight link between personal participation in the banking system and opposition to the controls. To gauge the extent of individuals’ involvement in financial matters, we asked survey respondents whether they had a savings account, whether they had a credit card, and whether they had any outstanding loans. The evidence showed that opposition to the exchange controls increased with the number of ways in which Argentines participated in the banking system. As shown in the graph below, more than 60 percent of the respondents with all three types of financial involvement either somewhat disagreed or strongly disagreed with the exchange controls. By contrast, Argentines with no “financialization” indicators opposed the controls by just over 30 percent, by contrast.

Put simply, the majority of voters who were involved in the financial system disapproved of these regulations.

Argentines who opposed capital controls voted for Macri.

A second striking finding from our research was the strong relationship between peoples’ views on capital controls and their votes in the country’s presidential primary election. During the campaign, the major presidential candidates extensively debated what to do about the exchange controls.

Kirchner’s handpicked successor, Daniel Scioli of the Frente para la Victoria (Front for Victory) party, opposed rapid liberalization. By contrast, Scioli’s main rival, Macri of the Cambiemos (Let’s Change) coalition, promised to remove controls on his first day in office. The third place candidate, Sergio Massa of Unidos por una nueva alternativa (United for a New Alternative) adopted a stance much closer to Macri’s, vowing to remove the controls within his first 100 days.

When Argentines were asked whom they intended to vote for in the election, a clear pattern emerged. Those that agreed with (or at least tolerated) the controls voted for Scioli in droves. On the other hand, the citizens who opposed the controls were much more likely to report that they intended to vote for the challengers – and they were particularly likely to go for Macri, whose candidacy promised the most radical shift away from Fernández de Kirchner’s statist and interventionist policies.

Given his campaign promise, it might not seem surprising that President Macri quickly eliminated currency controls.

But given his narrow margin of victory in the election, many expected the new president to do so more gradually. In fact, as inauguration day approached, Macri requested patience, saying that four years of capital controls cannot be resolved in a day. Macri’s advisers now emphasized the need to sequence reforms correctly, and Macri said that lifting currency controls would have to wait until “the situation is normalized.”

But in practice, Macri chose the policy most consistent with his political interests: his immediate need to deliver a policy change that satisfied the voters who brought him to power. Argentina will now live with the consequences.

Stephen C. Nelson is an assistant professor in the Department of Political Science at Northwestern University.

David A. Steinberg is an assistant professor of international political economy at Johns Hopkins University’s School of Advanced International Studies, and the author of Demanding Devaluation: Exchange Rate Politics in the Developing World (Cornell University Press, 2015).