Argentine economic situation will weigh on election results

Argentines will cast their vote next Sunday in a midterm election where the ruling coalition could lose power in Congress to a revitalized opposition, and amid high inflation and mounting economic problems.

Voters will elect half the seats in the Lower House and one third in the Senate, in an election that will act as a crucial test of the government’s fragile unity. Currently, Argentina faces a complex negotiation with the International Monetary Fund for more than US $ 40,000 million in loans, with a crisis-prone economy experiencing 50% inflation, a 40% poverty rate, and no access to international markets. of debt.

“Doors are closing for you and problems tend to be greater and greater, the costs to solve those problems tend to be greater and as always, nobody wants to pay these costs.“, said Marina Dal Poggetto, director of the consulting firm EcoGo, based in Buenos Aires. “The destruction of income worsens, poverty increases, it is a social time bomb ”.

The ruling Peronist coalition, heir to the political movement founded by President Juan Perón in the 1940s, lost most of the contests in the September primary elections, exposing the deep political divide between the president, Alberto Fernández, and the powerful vice president, Cristina Fernández de Kirchner, who ruled the nation from 2007 to 2015 with anti-business policies.

If the results of the primaries are repeated again on Sunday, the coalition would lose its majority in the Senate and the first minority in the Lower House, where it currently controls 47% of legislators compared to 45% in the main rival coalition. Voting begins at 8 am local time and results are expected Sunday night.

For opposition parties, this election represents an opportunity to signal that a more unified pro-market coalition could return to government in 2023 after former President Mauricio Macri lost a re-election bid two years ago. Additional legislative seats also mean the likelihood that demands for a shift toward more business-friendly policies will be driven forward.

Explosive letter

In the days after the September vote, Kirchner wrote an explosive letter criticizing Fernández, prompting the president to be forced to replace some of his allies within the cabinet, in addition to adopting more anti-IMF rhetoric, a concession to far-left groups in the coalition. The election of Governor Juan Manzur as chief of staff raised expectations that Peronist regional chiefs, key agents of power in Argentine politics, would support the government and provide political stability.

However, no major change in strategy has emerged in the past two months, while faster inflation and a series of social unrest have hampered the coalition’s position. Fernández was already under pressure from a scandal for holding a birthday party despite having ordered strict confinement during the pandemic, causing Argentines’ confidence in the government to drop to its lowest level since 2014.

Those cabinet changes “they were more cosmetic than anything else”, Said Camila Perochena, professor at the Universidad Torcuato di Tella in Buenos Aires. “Manzur could not achieve the order he expected, so it is very likely that it will lead to more changes”.

Investors concerned

Investors are also concerned that if they lose by a wider margin, the government could toughen its unorthodox policies, potentially even defaulting on payments to the IMF. In October, after failing to reach an agreement with the companies, officials decided to freeze the prices of more than 1,400 household items. That is in addition to Byzantine currency restrictions, capital controls, a ban on laying off workers, and one of the highest inflation rates in the world.

“Investors want the Peronists to lose, but not by too much“, said Edwin gutierrez, portfolio manager at Aberdeen Asset Management in London. “If they suffer defeat, there is a danger that they will become unpredictable. Nobody knows what Cristina Fernández will do if she feels cornered ”.

During the campaign, Fernandez and his Minister of Economy, Martin Guzman, hardened their rhetoric about the IMF, with the president saying that Argentina “will not kneel”Before the Washington-based institution. Even though Argentina needs a new agreement with the IMF to get the economy back on track after the record bailout granted to the Macri government in 2018 failed to stabilize it, Fernández is not willing to commit to the multi-year fiscal effort that they usually entail. such agreements.

So fears are mounting, in the government, in Washington and on Wall Street, that an agreement will not be reached between the parties before the large payments are due in March, after more than a year of slow talks. Not pay the IMF would isolate Argentina of almost all forms of international financing, while it would represent a damage to the reputation of the institution.

In any case, it is the voice of the vice president that everyone wants to hear after the middle of the term, including knowing if she still supports Guzmán as the main negotiator of the Argentina in the IMF talks.

“The big question is, what does Cristina Kirchner want to do?“, said Alejandro Catterberg, director of the pollster Polyarchy. If the coalition performs worse on Sunday than it did in the primaries, “Kirchnerism’s decision will influence whether or not to support an agreement with the IMF”.