Finacial Times – After months of turmoil and a $56bn IMF bailout, talk of economic recovery in Argentina may be relative — but it is enough to give President Mauricio Macri renewed hope ahead of October’s election.
Investors dumped Argentine assets three months ago after an opinion poll suggested Mr Macri’s re-election bid was in danger. The peso slumped, exacerbating the economic turmoil that has been an unwanted hallmark of his last year in office.
But the peso has since stabilised, appreciating 9 per cent since the beginning of May, and a range of economic indicators are being pulled along in its wake. Monthly inflation has fallen from 4.7 per cent in March to 2.7 per cent in June, which has allowed a pick-up in real wages.
As a result, signs that the worst of a year-long recession is over are lifting the president’s popularity.
“The biggest question is not whether there has been a turning point — that’s a fact. It is whether it will be enough for the government to win the elections,” said Alejo Costa, a strategist at BTG Pactual, a Brazilian investment bank.
Now all eyes are on a set of “primary” elections scheduled to take place on August 11, when voters in theory should decide who will head each presidential ticket. In narrow political terms, the primaries are all but redundant: the parties have already chosen their slates. But the vote’s wider significance will be in whether it reinforces Mr Macri’s momentum, or stops it in its tracks and ends the sense of calm in markets.
A market sell-off would fuel volatility in the peso, pushing up inflation and causing real wages — and with them Mr Macri’s popularity — to deteriorate.
The relative improvement in Mr Macri’s prospects is not just down to the stability of the peso. A senior government official working on the election campaign also attributed the positive trend in recent weeks to the confirmation of presidential candidates last month.
Not only did it put an end to rumours that Mr Macri might bow out of the race. The president chose the influential senator Miguel Ángel Pichetto from the Peronist opposition as his running mate, enabling the government to present itself as more open and disposed to dialogue, added his campaign official.
Mr Macri’s team is also betting that the proximity of the elections will concentrate voters’ minds. “This is beginning to put people into the mental mode of choosing between concrete options, and no longer just whether or not they are disappointed with the government,” the government official said.
In what is shaping up to be an increasingly polarised race, Lucas Romero, who runs the local pollster Synopsis, assigns a 50-55 per cent probability to a victory for Mr Macri, which would depend on the currency and inflation remaining stable.
Although the economy was always an important factor in elections, Mr Romero argued that “the factor that best explains political positioning in Argentina in the last 15 years is the conflict between Kirchnerism and anti-Kirchnerism”, referring to the husband and wife duo, Néstor Kirchner and Cristina Fernández de Kirchner, who ruled from 2003 to 2015.
Anti-Kirchnerism is stronger than ever, he said, because perceptions of corruption during the Kirchner era have deepened since Ms Fernández left power. That is largely thanks to two scandals — one surrounding a former senior official allegedly trying to hide bags stuffed with dollars in a convent, the other involving the publication of a collection of notebooks kept by a government driver detailing alleged acts of corruption.
“The government still has a chance of winning because no anti-Kirchnerist emerged to lead the Peronist opposition,” he said.
Alberto Fernández, cabinet chief under the Kirchners, is Mr Macri’s main rival, representing the political movement that has dominated Argentine politics for the past 70 years.
The gradual improvement in Mr Macri’s chances, despite the economy’s parlous performance over the past year, is reflected in a recent shift in market sentiment. Risk spreads on Argentine bonds have narrowed sharply in the past two months.
“The market is gradually buying into [the idea that] momentum will continue for Macri,” said Mr Costa, arguing that BTG Pactual’s recent positive revision of its previously more cautious stance towards Argentina is a “good example of how the market is feeling”.
But there is still everything to play for. “There is a very strong emotional component to these elections,” said Graciela Römer, a sociologist, pointing to a tension between the disappointment with Mr Macri’s achievements and the fear of a return to populism.
To consolidate victory, said Ms Römer, Mr Macri must convince Argentines that his painful reforms will eventually take effect. “He must show that he needs a second term so that all their sacrifices can bear fruit.”