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La sorpresa

26 October 2015 By Martin Langfield

Financial markets enjoyed the shock result of Argentina’s first-round presidential elections on Sunday. The contest will go to a November runoff after business favorite Mauricio Macri surprised leftist ruling-party candidate Daniel Scioli, and pollsters, with a strong showing. Scioli, backed by outgoing President Cristina Fernandez, will surely fan fears that his center-right rival wants to slash social programs. But voters may see the economic illusions touted by Fernandez and her acolytes as unsustainable.

Buenos Aires Mayor Macri’s 34 percent of the vote closed within 3 percentage points of Scioli, when polls had suggested a margin of around 10 percentage points. The higher probability of a market-friendly president strengthened the peso against the dollar on the black market on Monday and boosted Argentine stocks.

Investors are hopeful that Macri will dismantle more of the heavy state grip Fernandez has imposed on Latin America’s third-biggest economy than Scioli, and more quickly. Scioli has promised a more gradual approach. Either man is likely to seek a deal with creditors still suing the country over defaulted bonds from over a decade ago, but Macri would be less susceptible to pressure from Fernandez, who dismisses the creditors as “vultures” and has no plans to fade quietly from the scene. She may seek the presidency again in 2019.

What the electorate may have grasped is that for all Scioli’s boosting of the expanded social safety net Fernandez has built, the Argentine economy is creaking, undermined by a widening fiscal deficit, shrinking international reserves and inflation that’s in double figures even according to the government’s own unreliable data.

The momentum of Macri, a former president of top soccer club Boca Juniors, is not limited to his own candidacy. In elections also held Sunday, his candidate for governor of Buenos Aires province – the job currently held by Scioli – also won, underlining the opposition’s appeal. The presidency may now hinge on who can woo more of the supporters of moderate Sergio Massa, a former Fernandez cabinet chief, who came in third with just over 20 percent of the vote.

Scioli could yet pull it off. Argentines may decide that they prefer the devil they know. But it looks set to be a far closer contest than seemed likely before Sunday. Voters may prove willing to risk relative austerity if it also brings change.


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