What to expect from Argentina's presidential election

The upcoming elections in Argentina may represent a last chance for current President Mauricio Macri, who faces long odds to hold onto his position on the promise that only he can fix a sputtering economy.

In the months since August's primary elections, for which the business-friendly candidate crafted a message of continued policy and economic recovery, Macri has changed his tune, opting for some soft populist policies and increasing social spending. It remains to be seen whether this strategy will pay off or create a sensation among voters that he has betrayed his own principles.

In order to avoid defeat, Macri would first have to keep the distance between himself and his opponent to below 10 points in the election on October 27, which would mean a run-off vote. If he manages to pull this off, both he and opposition candidate Alberto Fernández would have to prepare for a second round on November 24.

If, as seems more likely, Fernández were to win, uncertainty persists about his policy proposals, although a series of statements and gestures have begun to paint a more complete picture of the Peronist candidate and his economic team. Fernández appears more moderate than Cristina Fernández, but he shares with her a vision that encourages industrial production, protects local businesses from foreign competition and involves large fiscal spending and a framework of high taxes.

In terms of his strategy to extricate Argentina from its current crisis, Fernández favors a “social pact” between workers unions, the government and private companies to keep prices under control and stem inflation. This would be accompanied by some form of temporary capital controls, albeit with less stringent requirements for international investors, according to several of Fernández’s economic advisers. In terms of the fiscal deficit, the candidate has said he aims for a fiscal surplus in the long term, but has left open the question of whether he will increase government spending as soon as he takes into office in order to try and spur economic activity.

In the election, voter concerns about economic performance, a large foreign debt and rising inflation will compound recently released data showing Argentine poverty has surged as a result of last year’s economic crisis, climbing from 25.4% in 2018 to 35.4% in 2019, according to national statistics bureau Indec. The indicator is expected to reach 37% by the end of the year.

While there are no official poverty figures for the tail end of Cristina Fernández’s tenure, as the government suspended the measurement, arguing it stigmatized poor families, experts estimate the figure was at 29% in 2015. This means that under Macri poverty began to recover but will end up considerably worse than under her populist predecessor. The news is expected to deal a big blow to Macri, as the issue ranks third among voter concerns.

POLLS

Most polls agree that the distance between Macri and his opponent has widened since the PASO primaries that took place in August, which Fernández won by 15 points. They predict a Fernández win of between 15 and 20 points (Fernández garnering more than 50% and Macri around 35%). Other candidates trail well behind and are considered outsiders, with centrist Roberto Lavagna coming in at around 7%. But it should be noted that all the available polls got the results of the primary elections wrong by more than 10 points, which should bring their accuracy into question.

In addition to those numbers, polls highlight that the three most pressing issues for voters are inflation, unemployment and poverty, which means the election mostly revolves around economic performance. Another insight from the polls is the fact that Macri’s policy about-face after the primaries, which saw him adopt some populist-leaning policies, shows support beyond his expected voter base of around 33%, with 49% of respondents seeing the measures in a positive light. This means Macri’s intuition that he could change the minds of some voters with these measures may prove to have some merit.

MACRO ENVIRONMENT

Whoever takes power in December will face a very complex macro environment. Argentina faces the possibility of a default on its foreign debt, has already partially defaulted on its local debt and a large part of fiscal spending is largely mandated by law, which does not leave a lot of wiggle room to make fast cuts.

A pivotal talking point will be whether Macri manages to convince voters that most of the headwinds besieging Argentina are a delayed result of the policies enacted by previous president Cristina Fernández de Kirchner, his opponent’s vice-presidential candidate, and are not a reflection on his own administration.

In terms of the macroeconomic situation, the most important factors will be inflation, central bank policy and a strategy to get Argentina back into economic growth.

To build his argument, Macri will point to the fact the economy was beginning to show modest signs of recovery right before his loss in the primaries, which sent the markets and the local currency spiraling out of control. His recipe for the economy, Macri argues, was working, and Argentines should give him more time to finish what he started.

If Fernández wins, it is likely he will not be able to go back to Cristina Fernández’s model for running the economy. Her strategy involved low foreign debt, a large fiscal deficit financed partly through monetary issue (leading to high inflation), a pegged currency and capital controls. This led to a system of relative stability largely supported by a government spending, with low local and foreign investment and slowly worsening indicators, such as poverty and unemployment, which rose during her tenure.

The current conditions are simply too different, and if Argentina does not find a way to get a stream of dollars into its economy, it faces a deeper default on its large foreign debt, which amounted to 62% of the country’s GDP in 2Q19. Total Argentine debt sits at 80.7% of GDP, roughly double the amount in 2014, the last year of Cristina Fernández’s presidency. Most of that growth is due to foreign commitments, including a US$57bn IMF bailout extended to the Macri administration last year.

What has been revealed of Fernández’s plans suggest he will try to boost the country’s export potential to try and get as many dollars into the economy as possible. The way in which he will try to do this, however, has not been explained, and will probably vary from industry to industry.

ENERGY

There are two aspects to an upcoming Fernández-led energy sector: electric power and oil and gas.

In electric power, the candidate’s policy is highly uncertain. While his political sector generally supports a move to renewables, there have been no signs about what will happen with the RenovAr tenders and how the sector will be managed.

In terms of the distribution sector, the situation is very complicated. The big spikes in residential power prices (a consequence of slashing subsidies) have fueled popular anger against Macri, and some sectors of Fernández’s party have turned a rejection of price hikes into a political rallying cry. To that, we must add the fact that Néstor Kirchner (Cristina Fernández’s husband and predecessor and Alberto Fernández’s role model in the campaign) instituted a power price freeze back in 2002. The incentives for Fernández to intervene in the sector will be pressing. Although increasing subsidies will be hard during an economic crisis, it is likely that the price adjustment process, which is still ongoing, will face challenges.

In oil and gas, however, the outlook is more positive. Fernández and his advisers have repeatedly said they will try to shield the Vaca Muerta unconventional formation from political uncertainty by drafting a new law aimed at boosting oil and gas exports. Whatever a new administration decides to do with the sector, state-controlled giant YPF will likely play a key role.

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MINING

Fernández has said his agenda will include a 10-year growth plan for the mining industry aimed at boosting exports. The plan will focus on lithium, which is seeing rapid development in the country, with output projected to reach around 250,000t/y by 2050 compared to current production of around 6,200t/y.

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INFRASTRUCTURE

For infrastructure, the outlook is uncertain and there have not been clear signals. Some Fernández associates mistrust public-private partnerships (PPPs), but have said they will respect contracts already signed, as BNamericas reported previously. For now, observers will have to wait and see on the outlook for the sector.

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