Argentina's Fernandez Faces Dire Economic Situation, BlackRock Says
President-elect Alberto Fernandez will discuss the transition of power in Argentina with the defeated incumbent, Mauricio Macri, after an election in which voters opted for left-wing populism over pro-market policies to combat the country’s economic crisis.
Fernandez, a political insider who has never held national office, is due to meet with Macri first thing Monday morning after sweeping to power in Sunday’s presidential election with 48 per cent of the vote to Macri’s 40 per cent, enough to avoid a runoff.
The fragility of the economic situation Fernandez will inherit was reinforced overnight as the central bank announced tighter currency controls and Argentine bonds dropped in early European trading.
Fernandez, who takes office Dec. 10, addressed jubilant supporters on Sunday alongside his deputy, former president Cristina Fernandez de Kirchner, shortly after Macri offered his congratulations.
“Hopefully those who were our opponents during these four years are conscious of what they’re leaving behind and help us rebuild the country from the ashes,” said Fernandez.
The opposition win signals the return to national power of Peronism -- an anti-elite political movement that traditionally favors workers over business owners. But while voters rejected the austerity of Macri’s government, the outcome was also tighter than expected, reflecting wariness about Fernandez’s ability to steer the economy through tricky waters.
The central bank said early Monday it would further tighten limits on the purchases of dollars, to just US$200 per month from the $10,000 set on Sept. 1. A central bank spokesman said earlier that financial institutions will open normally. Argentine bonds due 2021 were down 0.5 per cent to 46.49 cents on the dollar in European trading.
After a frenzied final few weeks of campaigning Macri managed to narrow the vote gap from a 16 percentage point deficit in a primary in August -- an outcome that spooked markets at the time, sending the peso tumbling and forcing Macri to enact capital controls. His party also fared better than forecast on Sunday in several districts.
“While still a loss, it creates a more balanced Congress and political landscape going forward,” said Jimena Blanco, political research director at consulting firm Verisk Maplecroft in Buenos Aires.
Fernandez’s broad promises to improve things will run into immediate difficulty when he is sworn in, given a lack of funds to play with: The economy is contracting, inflation is above 50 per cent, unemployment is more than 10 per cent and a third of the population lives below the poverty line. Investors also expect the government to default at some point.
Fernandez, 60, must satisfy the competing demands of far-left factions in his broad coalition that want more social spending, and the International Monetary Fund, which agreed to a record $56 billion bailout last year. The IMF will likely have little appetite to dole out more cash if Fernandez implements policies that risk a balanced budget.
His victory, and the uncertainty around it, comes at a fragile moment for Latin America. A wave of violent, anti-austerity protests has rocked Chile and Ecuador; Peru faces major political uncertainty; Venezuela’s economy has collapsed; and the presidential election result in Bolivia has been called into question.
“Fernandez will have to be a little bit humble about the victory,” said Alberto Bernal, chief global strategist at XP Investment in Miami. “The Fernandez win was priced in, but this tight a difference was not priced in.”
A key question will be how Fernandez interacts with his powerful vice president. Kirchner was president from 2007 to 2015 and handed Macri an economy damaged by years of Peronism. She was initially expected to run for the top job, and her influence in the new administration will be closely watched.
In her time as president, Kirchner raised tariffs, printed money, ignored investors and published economic data that understated inflation and overstated growth. While Fernandez’s advisers say he’ll control policies -- Kirchner kept a very low profile during the election campaign -- her popularity helped catapult him to victory and her presence concerns investors.
Now a senator, Kirchner faces 11 separate corruption cases. She denies wrongdoing in all of them. Multiple high-ranking officials in her government, including her former vice president, have been convicted on separate graft charges.
Fernandez has a broad array of advisers, from traditional policy makers to economists who helped implement Kirchner’s policies when she was in office.
On the campaign trail he’s talked about raising salaries and social security payments, boosting exports, cutting interest rates and lowering inflation, all while reaching a fiscal surplus. He’s also spoken about having a “friendly” renegotiation with creditors and the IMF.
Macri’s defeat marks a stark finish for a leader who arguably had more international support than any president in recent Latin American history. Elected in 2015, Macri promised to turn around the economy, slash inflation, end poverty and put Argentina back on the world stage with pro-market reforms.
Instead, he struggled to attract foreign investment. His government racked up debt to cover the bloated deficit he inherited from Kirchner.
The economy did show promising signs in 2017, and Macri’s party performed strongly in mid-term elections.
But a record drought, falls in global markets, and zigzagging policies dragged the economy into a currency crisis and recession last year. The election uncertainty only compounded the downturn. Macri’s return to the IMF hurt his approval rating, dredging up scars from its last deal with Argentina in 2001, which ended in economic collapse.
Argentina’s economy is now likely to have contracted for three of Macri’s four years in office. Fernandez will take the reins with no easy choices ahead.
“The dynamic between Macri and Fernandez in the next 45 days will define and set the tone for the months to come,” said Juan Cruz Diaz, director of consulting firm Cefeidas Group. “The strength of the opposition, as a result of a robust electoral performance of Macri, will force Fernandez to negotiate to advance his agenda.”
--With assistance from Sydney Maki, Scott Squires, Carolina Millan, Daniel Cancel and Ignacio Olivera Doll.