2019 Elections - Part 6. Argentina: Macri Magic and the Peronist Spell

Political dynamics in Argentina are highly uncertain in comparison to the relative predictability of even Greece and South Africa. The electoral fortunes of Mauricio Macri and the fragile Cambiemos, the incumbent, and a pro-market outcome for Argentina, will depend on the degree of accomodation within Peronism as in 2015. If Cristina Kirchner stands for election, our central scenario, albeit if she survives a probe, she will probably run an anti-IMF/austerity campaign, outflanking more moderate voices within Peronism, which raises uncertainties and risks to Argentina’s stability. Populism is on the rampage across the world, though the tide may be turning against Cristina Kirchner’s brand, embodied in her elevated rejection rate. Macri may be counting on having Cristina as his adversary. There is even a theory that Macri, in tune with Brazil’s Bolsonaro, will structure his campaign around a “tough on crime” platform. This could be a masterstroke diverting attention from the state of the economy. However, Macri’s hopes, based on macroeconomic orthodoxy, backed by the IMF, cannot be dissociated from a tangible improvement next year in the financial well being of the population in general. While inflation may work in his favour, declining from 45% to the 25% area, and a narrowing current account plus bumper harvest are forecast, high joblessness and social cohesion represents a risk to the Macri project. We are mindful too of the potential for corruption fireworks, including “Lavo Jato” or “Carwash”, which could derail some political aspirations. Whoever wins the presidential election, and a Macri victory is the most probable scenario, Argentina faces a highly uncertain 2020 from the perspective of debt sustainability. Despite the recent strong outperformance of uncorrelated Argentine asset prices in a global risk-on rebound, including (a worrying) Peso overshoot, not unrelated to the upgraded generous IMF package, it is difficult to have an excessively bullish conviction call in what is a highly speculative market based on “everything coming together” as planned. 2015 elections were too close to call and 2019 has its complexities. In LatAm, one can never take anything for granted - least of all an electoral “shoo-in”.

This series is co-authored by Paul Hollingworth at Creative Portfolios and Virgil Fernandez Esguerra.