The political transition begins
On October 28th the outgoing centre-right president, Mauricio Macri, met with the left-leaning president-elect, Alberto Fernández, to begin preparations for the political transition. Mr Fernández, who had won the presidential election on the previous day, is set to take office on December10th. There are indications that the two leaders will co-ordinate closely to ensure an orderly transition during a time of economic distress. However, once the Juntos por el Cambio (JC) coalition led by Mr Macri moves into opposition, it will seek to assert itself as a counterweight to the leftist, populist factions of the Frente de Todos (FdT) alliance led by the more moderate Mr Fernández. The president-elect faces a tight set of political and economic constraints, and we continue to expect him to pursue a relatively pragmatic approach to policy making. Political transitions have frequently been disorderly in Argentina, especially in times of economic crisis. After Argentina plunged into its last major financial crisis, in 1998-2002, the country changed presidents four times in three and a half years. Given this historical context, the October 28th meeting between Mr Macri and Mr Fernández was encouraging. During the meeting, the two leaders agreed to work together in the transition period, particularly with regard to economic policy.
Mr Fernández's transition team will be led by Santiago Cafiero, who served as the president-elect's campaign chief. The other main figures on the team include Gustavo Béliz (who served as justice minister in the Néstor Kirchner administration), Vilma Ibarra (a former lawmaker) and Eduardo "Wado" de Pedro (a member of the lower house of Congress and a close confidant of Mr Fernández). Their key counterparts in the outgoing administration will be the interior minister, Rogelio Frigerio, and the economy minister, Hernán Lacunza.
A shift in policy emerges
The economic teams of Mr Macri and Mr Fernández have already begun to co-operate. They have agreed to the tightening of capital controls, which became effective on October28th, in order to preserve the stock of foreign reserves for the incoming government. The Banco Central de la República Argentina (BCRA, the central bank) has also begun to take steps to loosen monetary policy (in line with Mr Fernández's stated policy preferences).
That said, there remains a high degree of uncertainty surrounding Mr Fernández's broader economic policies and we will be paying close attention to his cabinet choices. In particular, his selections for the posts of economy minister and BCRA president will shed much-needed light on the direction of policy. If he appoints relatively orthodox economists—such as Guillermo Nielsen, a former finance secretary (2002-05), or Martín Redrado, a former BCRA president (2004-10)—to these positions, markets are likely to respond positively. By contrast, if the president-elect favours more heterodox economists—such as Matías Kulfas or Cecilia Todesca, both of whom belong to his Grupo Callao think-tank—he will face an uphill task in gaining investor confidence. Although both Mr Kulfas and Ms Todesca have criticised the excessive regulation that was put in place during the second administration of Cristina Fernández de Kirchner (president in 2007-15 and incoming vice-president), they are also known to support some of her policies, such as protectionist, import substitution industrialisation (which has historically led to the creation of under-competitive domestic industries).
A check on Peronism
On balance, we expect the president-elect to take a pragmatic approach to policymaking. This in part reflects his limited scope for manoeuvre if he is to successfully renegotiate Argentina's US$57bn lending arrangement with the IMF and restructure sovereign external debt held by private creditors in an orderly manner.
The political scene will not be as favourable to Mr Fernández as the August11th primary contest had suggested. At the October27th election he did not obtain as decisive a mandate as he had expected; he failed to win an outright majority of the votes hare, and his margin of victory over Mr Macri was halved to just 8percentage points, from 16percentage points in the primary. Furthermore, following the legislative elections held on the same day, the FdT will control the Senate (the upper house of Congress), but has fallen short of a majority in the Chamber of Deputies (the lower house). The FdT will control only 111 out of the 257seats in the Chamber of Deputies; even accounting for its allies who belong to provincial Peronist parties, it can only count on the reliable support of about 120lawmakers. It is likely to have to negotiate with the centre-right JC (the largest grouping in the new lower house, with 119seats) or with the moderate centrist Consenso Federal party (which won seven seats).
The JC's role as the principal opposition to the FdT is yet to be fully defined. Much will depend on the person who leads the coalition.The Buenos Aires city mayor, Horacio Rodríguez Larreta, won re-election comfortably in what is a JC stronghold, and is in a good position to take on the coalition's leadership. He would be likely to adopt a conciliatory approach, and this could help to secure the JC's longer-term future.
However, Mr Macri fared better than had been expected and—along with the outgoing, newly defeated governor of Buenos Aires province, María Eugenia Vidal—is likely to retain an important role in the JC, which he helped to found. The problem is that Mr Macri has become a more polarising figure within the broad-based coalition. If he remains its leader, key members such as the centre-left Unión Cívica Radical (UCR) would be more likely to abandon it, leaving his own centre-right party, Propuesta Republicana, weakened.
Further complicating matters is the power vacuum within the UCR, created by the impending resignation of its leader, Elisa Carrió, from the legislature and from active politics. On October29th Ms Carrió, a founding member of the JC, announced that her departure would become effective on March1st2020. Despite the uncertainty surrounding the future of the JC as a bloc, we still expect the UCR to remain a key part of the political opposition, as indicated by the positions of influential UCR members such as incoming senators Alfredo Cornejo and Martín Lousteau. This will provide an important political counterweight to the more leftist populist factions of the FdT.