There Is Only One Way Mauricio Macri Is Re-Elected In Argentina
Elections are in October. Incumbent Mauricio Macri is in as much a fight for his political life as is Cristina.
At this point there is only way Macri gets re-elected, and it's not a miracle from the heavens.
Cristina's old baggage is about to pour out of her closet again. Unless something happens at the high courts of Buenos Aires on Tuesday morning, then her racketeering case goes to trial today. There are 9 prosecutions in process against her, family members and associates.
"As soon as this election stops being about Macri, and it starts being about Cristina, then it's a different race," says Kevin Ivers, vice president, and Latin American expert at the DCI Group in Washington, DC. "These trials are not good for Cristina Kirchner. The more the courts come down on her, she will politicize the process. It'll be chaos. This is her game."
The trials pose a big risk to Cristina and, suffice to say, look like Macri's only hope at re-election.
The prosecutions are related to Kirchner-family owned hotels in Patagonia believed to have been used in a kickback scheme with a construction magnate named Lazaro Baez. In short, his company rented out rooms in Kirchner properties but the rooms were never occupied. The question remains whether payment for those rooms was a form of kickbacks for lucrative public works contracts of which Cristina is at the center. Baez is in jail, serving a three-year preventive sentence awaiting trial. That sentence was extended for a year in April.
New evidence against Cristina came out last year in the famous Notebooks scandal, a scandal named for the actual notebooks full of information potentially damaging to Cristina, or those in her inner circle.
The Courts Against Cristina
Last week, Argentina's Supreme Court issued a ruling allowing for Cristina's public corruption trial to be postponed indefinitely. The public smelled a rat as justices linked closely to her Justicialist Party all voted in favor of the resolution.
There were immediate suspicions of a pact of impunity between those judges and Cristina's intermediary with the high court, her choice to run as president, Alberto Fernandez. To date, Cristina has skated by in the polls due to Macri's terrible approval ratings.
Macri has been swimming upstream since last year. His Cambiemos party is weak, and will have a harder time garnering support outside of Buenos Aires province.
His presidency took a turn for the worse when he abruptly announced the return of the International Monetary Fund to Argentina in June 2018. The IMF is arguably the most hated international institution in Argentina and linking to it may yet prove to be his death knell.
On Thursday, facing a growing public backlash on the postponement of her trial, including condemnation from the national judges association, the Supreme Court retreated and kept her trial scheduled for today.
This is about to get nasty, thinks Ivers from DCI Group. "The former president is primarily engaged in a desperate effort to stay out of prison," he says, mimicking what most Macri supporters believe.
Some investors think she's a genius by chosing the VP slot instead. It unites Peronists from the center and the left. But even more think a President Cristina -- whether she defaults or not -- will be forced to renegotiate government debt and have a harder time convincing bondholders to trust her.
The politics surrounding Cristina's life will be more in focus, potentially taking some heat off Macri.
Like Brazil's ex-president Luiz Inacio Lula da Silva, arrested and jailed last year for his involvement in the Petrobras bribe schemes, Cristina considers all this an act of persecution. Cue the narrative. Despite the fact that most political reporters know this narrative is coming from her party, they will report her persecution without question from Sao Paulo to London. Just wait for her Washington Post or New York Times op-ed. It's coming. (Or Fernandez will write it, as her surrogate.)
Cristina has more to worry about than her political legacy.
Her daughter Florencia faces indictments because some of the money believed to have been laundered was put in her name. She is a private citizen without political immunity. As of this past weekend, Florencia was in a Cuban hospital, supposedly too sick to return to Argentina.
Macri 2020: Definitely Cry For Me, Argentina
Argentina's credit outlook is negative thanks to a fragile economy and risks to sovereign debt sustainability and financing flexibility, all amplified by Macri's uncertain future.
The IMF program remains on track, helping to mitigate near-term financing risks and keeping the peso from sinking to the 50s. Any sign of peso weakness should be taken as another point off Macri in the polls.
Election outcomes resulting in policy disruptions or a negative market reaction pose a major downside risk to the economy. Challenges to growth, macroeconomic stability, and a bewildering reform agenda may persist no matter who wins, Fitch Ratings analysts said in a note last week.
Fitch estimates that Argentina's government needs around $48 billion in 2019, all covered by scheduled IMF disbursements, pre-financing, and rollover of public debt holdings and repo lines. A funding gap re-emerges in 2020 as IMF funds run out.
Federal government debt rose to 86.2% of GDP in 2018, up from just 56.6% in 2017. A Cristina-led government should put that to 90% as she would be forced to subsidize large swaths of the economy. Although a Fernandez-Kirchner ticket has her as the No. 2 on the ballot, Cristina would be akin to Dick Cheney in the presidency of George W. Bush.
A Fernandez/Cristina presidency could also usher in a return of the black market in pesos, making that the best trade in Argentina.
Despite the risks, Argentina is going into the MSCI Emerging Markets Index on May 29th. Anyone holding the iShares MSCI Emerging Markets exchange-traded fund will own about seven Argentina stocks, most of them ADRs priced in dollars.
MSCI said that if Cristina won and instituted capital controls, then Argentina would eventually be removed again from the index.