Uncertainty hangs over Argentina’s political and economicfuture
An unexpectedly heavy government defeat in Sunday’s midterm primary elections might sound like good news for investors who are keen to see Argentina trim spending, reduce inflation and reach agreement with the IMF on restructuring $45bn in debt.
But it is too soon to celebrate. The poor result for President Alberto Fernández’s leftist Peronist party does not necessarily herald better economic policy or an opposition victory in the 2023 presidential election. In the short term it might prompt a lurch towards more populist policies.
The Peronists won just 31 per cent of the vote, with the investor-friendly Juntos (Together) coalition taking 40 per cent. Were this result to be repeated in November’s congressional elections — which is not a given — Fernández would lose his majority in the senate and Juntos would become the biggest single party bloc in the lower house, though still short of an overall majority.
Reasons for the defeat are not hard to find. Fernández inherited an economy in recession but failed to deliver on promises to reduce poverty and improve living standards. Poverty has risen, while inflation and unemployment remain stubbornly high.
“The economy played a much bigger role in the primaries than the government expected,” said Juan Cruz Díaz, managing director of Cefeidas Group, a risk advisory consultancy in Buenos Aires. “The government hoped the advance of vaccinations would have a bigger effect, but that was not the case.”
Voters also expressed anger at the handling of the pandemic. Fernández imposed one of the world’s longest lockdowns, crippling the economy. But lax enforcement and the need for poorer Argentines to go out to earn a living led to waning compliance and soaring Covid death rates.
Mariel Fornoni, director of the consultancy Management & Fit, said that six out of 10 voters in her surveys disagreed with the government’s handling of the pandemic, and seven out of 10 with its economic management. “Many people were so angry they didn’t want to reply at all,” she said.
The recent publication of photographs showing Fernández holding an illegal birthday party at the presidential residence during the peak of lockdown was a key reason for voter anger. “Many people at the time were having to say farewell to loved ones by video or closing down their businesses, so this really touched a nerve,” Fornoni said. Coming on top of a separate scandal over well-connected government figures jumping the queue for vaccines, it reinforced a perception of an administration looking after its own.
Fernández has not yet indicated how the government will respond to the defeat. Cristina Fernández de Kirchner, the vicepresident and the real power behind the throne, is likely to press for a cabinet reshuffle to boost the influence of her more radically minded faction. That is unlikely to help at the polls; regions controlled by Fernández de Kirchner’s allies did as badly as those close to the president. But with Argentina still shut out of international debt markets and the economy struggling, the space for further increases in government spending is limited.
The opposition has problems of its own. Sunday’s vote was more a protest than a ringing endorsement of Juntos, who many remember for mismanaging the economy in 2018-19. The shadow of unpopular former president Mauricio Macri hangs over the coalition.
The uncertain outlook helps explain the muted initial reaction to Sunday’s vote in financial markets. While the government may be forced to moderate economi policy there is scope for unpleasant surprises. These could include a spending splurge financed by printing money, more intervention in the economy or ructions within the ruling Peronist bloc. Argentina is notorious for disappointing investors and these elections are unlikely to be an exception