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INVESTOR HOPE If Mauricio Macri wins the election, there will be fireworks in the financial markets and the economy in general, experts say. (Photo: PRO)
Wednesday, October 28, 2015
Perspectives

Argentina Elections: Hope for Investors

First round elections a blow to President Kirchner, gives hope to investors for change.

BY LATIN AMERICA ADVISOR
Inter-American Dialogue

Center-right Buenos Aires Mayor Mauricio Macri won enough votes on Sunday in the first round of Argentina’s presidential election to trigger a runoff against the top vote-getter, ruling party candidate Daniel Scioli. To what can Macri attribute his unexpectedly strong showing? What factors between now and the runoff on Nov. 22 will decide who is elected in the second round? Which of the two candidates will receive the bulk of third-place finisher Sergio Massa’s supporters? What other races in Sunday’s election in Argentina had most significance?

Claudio Loser, visiting senior fellow at the Inter-American Dialogue, president of Centennial Group Latin America and former head of the Western Hemisphere Department of the International Monetary Fund: Daniel Scioli won credibly in the first round of elections in Argentina on Sunday. However, this has become the worst defeat for the ruling Peronist Frente para la Victoria (FPV), and the pollsters who predicted either an outright victory, or a large difference in the electoral vote. The two percent difference between the candidates shows a competitive run for the second round. The marginal presidential win and the inconceivable gubernatorial loss in Buenos Aires province (40 percent of the electorate) suggest an end to the FPV reign. This is further supported by their loss in the next four largest districts plus the eighth, with a share of about 30 percent of the electorate. Furthermore, the FPV lost control of the lower house of Congress. However, the fight ahead is tough. In particular, the followers of the neo-Peronist Massa are difficult to predict. The mostly self-inflicted poor economic performance, the aggressive use of raw power and clientelism, and the allegations of corruption and drug dealing are rejected by the Argentine middle-class. But Peronists are attracted by power, and they will go for the one candidate who promises the most credible access to it. Kirchnerism is not credible in this regard, and Macri, while a coalition person, may seem too far removed from Peronist populism. But the economy or scandals may worsen, and that will certainly move more people to Macri’s camp. However, a clear case cannot be made until the dust of this storm settles.

Alberto Bernal, head of research at Bulltick Capital Markets in Miami: The impressive performance showed by PRO candidate Mauricio Macri on Sunday will go down in history as one of the most benevolent surprises ever recorded in Argentina. All of the polls were showing that the uncertainty over the race was not whether Daniel Scioli would win the election, but rather if he would receive enough support to win in the first round. No one was expecting to see a competitive race, which is exactly what we got on Sunday. The strong showing of Macri is likely a function of the materialization of a democratic reaction to the ‘need for change’ that the Argentine population seems to be cherishing after so many years of the Kirchners being the sole political force of the country (many Argentines associate that regime with incessant corruption). Our guess is that the soon to be published polls will show that Mauricio Macri will be carrying a commanding lead going into the second round (because his campaign will be carrying huge momentum). Candidate Sergio Massa will most likely not ignore the polls, hence we suspect that he will decide in favor of supporting Macri going into the ballotage. We think that if Massa supports Macri, it will prove very hard for Scioli to win the election. If Macri wins the election later this year, there will be fireworks in the financial markets and the economy in general, because Macri’s economic program is very friendly toward investment. The other impressive surprise coming out of the elections was the triumph of Margarita Vidal in the Province of Buenos Aires gubernatorial race. Ms. Vidal defeated Aníbal Fernández, a staunch supporter of president Cristina Fernández de Kirchner. Ms. Vidal is a key member of the PRO, Macri’s party. The ruling party’s loss of control of Argentina’s most populous province implies a huge political blow for the president.

Miguel Kiguel, executive director of EconViews in Buenos Aires: Cambiemos was the big winner in the elections as María Eugenia Vidal became the new governor of the province of Buenos Aires with her defeat of the official FPV candidate, Aníbal Fernández, while Macri did a much better election than the opinion polls had anticipated and he now appears to be the front-runner in the runoff with Daniel Scioli on Nov. 22. The big question at the moment is whether Macri will be able to capture a big part of the opposition vote (mainly from Massa who obtained 21 percent of the popular vote), with whom Cambiemos seems to have more elements in common. Markets reacted positively to the news, as there was a strong rally in stocks and bonds. Macri is clearly favored by the markets as he seems to be the candidate who is more likely to move the country toward a normalization of the relationship with international financial markets and the creation of a better business climate that encourages investment with clear and stable rules of the game. Nevertheless, if Macri wins, he will face important challenges on the macroeconomic front as he will take over a country with large macroeconomic imbalances, as the fiscal deficit exceeds 7 percent of GDP, reserves are very low, the currency is grossly overvalued and the country remains in default. While Macri is the front-runner, the election is not a done deal. Scioli still has room to make a comeback, though he probably will need to change his strategy and separate himself from Cristina and from the more radical views in order to capture centrist voters. Two debates will help set the stage for the runoff. These will be four very exciting weeks in Argentina.

Republished with permission from the Inter-American Dialogue's daily Latin America Advisor

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