Investors' eyes on Argentina ahead of Sunday’s primaries

Argentines head to the polls on Sunday for the country’s mandatory primaries – the results of which will indicate voter preference ahead of October’s presidential election.

The spotlight will focus on the two frontrunners, center-right President Mauricio Macri and Alberto Fernández, whose vice-presidential running mate is populist former leader Cristina Fernández de Kirchner.

The key issue nationally is the state of the economy, which has been wheezing since 2Q18, including inflation, rising poverty and living costs.

After Macri took office in 2015, he lifted currency and price controls on some public services, forcing a difficult adjustment process on consumers that was expected to pay off by the end of his first term. Last year, however, a currency crisis shot Argentina into hyperinflation. Facing the possibility of a government default, Macri turned to the IMF, which extended a US$50bn bailout package, the highest in the multilateral’s history.

Since then, Argentina has been in recession, with GDP shrinking 2.5% in 2018 and an expectation of a 1.2% reduction this year. Polls show Macri remains competitive despite these issues, with a myriad of corruption scandals related to Fernández de Kirchner’s administration hurting his opponent’s chances. The latest polls suggest Macri will come in second by a difference of about two or three points, which would put him in a good position come voting day on October 27.

Policy continuity is a central issue for investors, who may get spooked if Macri puts in a worse-than-expected performance. For while a Macri victory in October should see an extension to the current IMF-backed belt-tightening strategy, it is less clear what fiscal and economic policy would be under a Fernández government.

Centrist former economy minister and Peronist Roberto Lavagna of Consenso Federal and the other six candidates – Nicolás del Caño (Frente de Izquierda), Manuela Castañeira (Nuevo MAS), José Luis Espert (Frente Despertar), Juan José Gómez Centurión (Frente Nos), Alejandro Biondini (Frente Patriota) and José Romero Feris (Partido Autonomista Nacional) – are seen as outsiders.

Argentina introduced the current primary elections model, known as the Paso, in 2009 to allow parties to choose their presidential nominee ahead of the national elections. Since most parties field only one candidate, and the law says that a one-list candidate still has to compete, the Paso tends to serve as a de facto national poll.

Candidates from the two main parties – Partido Justicialista and Unión Cívica Radical – who wish to challenge the frontrunners usually run in the Paso through their own offshoot party.

To advance to the first round of the presidential election, candidates need to secure at least 1.5% of the national vote on Sunday. In October, if no candidate secures at least 45% of the votes – or 40% with a 10-point lead over their closest rival – a runoff between the two leading candidates will be held on November 24.

Written in collaboration with Cristóbal Riego.