LGIM: Commentaar Uday Patnaik op Argentijnse verkiezingen

LGIM: Commentaar Uday Patnaik op Argentijnse verkiezingen

24 oktober 2019

Politiek

Argentina will hold elections for the presidency, half the congress, a third of the senate and some remaining provinces, including Buenos Aires (Argentina’s most populous province), this Sunday. Voting is compulsory for the 33 million eligible votes. 

The focus is on presidential elections. A candidate needs to win 45% of votes cast, or 40%+10% lead over next highest polling opponent, to win in the first round. If no candidate meets these benchmarks, a runoff is scheduled for November 24 between the two highest polling candidates.

The leading contenders are the incumbent president Mauricio Macri of the Cambiemos coalition and Alberto Fernandez of the Peronists.

Mr Fernandez defeated the incumbent in the August 11 primaries, gaining ~48% of the vote, ~15% higher than Mr Macri, thus satisfying both conditions for a first round win.

Markets widely expect President Macri to be unable to bridge this gap. Indeed the latest polls, if they are to be believed, suggest the margin between the two candidates has widened further to 22.5% since the primaries in favour of Mr Fernandez (54% to 31.5%). This implies a first round win for Mr Fernandez is the likely outcome.

Currently, our base case probability is that Alberto Fernandez wins the elections in the first round.  Furthermore, we believe that a first round win would be perceived as a positive outcome by the markets in that Argentina needs to immediately implement a credible economic program, re-establish discussions with the IMF, and approach investors on re-profiling/restructuring the sovereign’s debt.

Post the IMF meetings in Washington DC several days ago, meetings with the IMF and Fernandez focused on the potential new government’s ambition to continue a dialogue with the IMF, which is clearly positive, however economic policies were not discussed at this stage.  Likely because Macri and Fernandez are in the midst of a campaign, Fernandez has been hazy about outlining details on his economic plans. 

That said, the IMF mission is to arrive in Argentina the next week or so following the elections, and I would suspect that we will soon be receiving details of Fernandez’s economic policies.  We do know that Fernandez wants to put together a social pact with the business community and the unions to agree on wages, for example, and the market is also speculating that the recent capital controls will be tightened, but we are yet to hear firm policies.  Also, I believe that Fernandez is looking to promote exporters (in part to bring in USD), and I believe he will want a competitive exchange rate.

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