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In Argentina, the Ghost of Populism Haunts Investors Ahead of Elections

Reading Time: 4 minutesSunday’s primaries tested the strength of Cristina Fernández de Kirchner’s challenge to President Macri’s economic agenda.
Reading Time: 4 minutes


Reading Time: 4 minutes

This piece has been updated.

Every morning María Graciela Ottaviani sets up a cart by the beach in Mar del Plata, Argentina, where she sells popcorn to the tourists that flock to the coastal city. It’s not easy work for the 71-year-old, who recently broke an elbow when she fell on the stairs.

But ever since President Mauricio Macri took office in December 2015, embarking on a reform program meant to attract investors and reignite the economy – including painful cuts to utility and transport subsidies common under his predecessor Cristina Fernández de Kirchner – Ottaviani’s retirement pension hasn’t been enough to cover her living costs. This austerity is hurting retirees and the poor, she told AQ.

“Our income is not enough to cover the rising electricity, gas and food prices,” said Ottaviani, who has lived her whole life in Mar del Plata, in the Province of Buenos Aires.

Ottaviani is one of many Argentines who say they’ll help elect Fernández as senator in Argentina’s upcoming midterm elections. But while Ottaviani hopes a Fernández victory will help improve her economic situation, a return of the former president to elected office could mean bad news for Macri’s economic agenda, suggesting voters’ disenchantment with the economic reforms he argues are necessary to put Argentina on a path of 4 percent yearly growth in the long term.

Ottaviani’s home town has an important role to play in this dispute. It was here, on July 14, that Fernández announced her candidacy for senator for the Province of Buenos Aires. This is in part because Mar del Plata has the highest unemployment rate in the country, at 10.6 percent of the working-age population. With over 37 percent of the national electorate, the province has historically been Argentina’s most important political battleground.

Fernández’s campaign saw its first her first real test of support in the province on August 13, when Argentines voted in the “simultaneous, open, and obligatory primaries,” or PASO for their Spanish acronym. The results were very close, with Fernández sitting in second as the final votes are counted, just .08 percent behind Macri’s minister of education, Esteban Bullrich, who is running for Cambiemos.

A recent study comparing 13 different election polls had shown Fernández as the probable winner of the primaries in the Province of Buenos Aires, with an average 33.7 percent of the vote. In Sunday’s vote, she took 34.12 percent of votes cast. 

While the primaries carry little weight because most parties are running with a unified list of candidates, they act as a bellwether for the general elections, slated for October 22.

If the results in October reflect Sunday’s primary results, Macri’s promise to re-ignite the economy by luring investors with his ambitious economic reform program might be at risk. Due to the way Argentina’s senate elections work, a second place finish would be enough to send Fernández back to Congress, where she once served before the presidency.

Fernández’s legacy of high public spending and government intervention in the economy scares investors who see a landslide for her in the midterms as a sign that voters would be willing to back her for another presidential term come 2019, says Jimena Blanco, head of Latin America research at Verisk Maplecroft, a risk and strategic consulting firm.

“It would really be a threat to everything Macri has accomplished so far,” Blanco told AQ.

Since taking office, Macri’s economic team has restored Argentina’s access to global credit markets, eliminated currency controls and lifted the country out of recession. However, while the latest figures show a slow economic recovery, the fear of a Fernández comeback has already been felt in financial markets.

The peso has hit record lows against the dollar since Fernández’s candidacy announcement. Back in June – days after Fernández announced the formation of a new electoral front, all but confirming rumors of her candidacy – the American investment research firm MSCI announced that Argentina would not regain emerging-market status on its stock market index, a move investors and the government had thought a near certainty. In a statement explaining its decision, MSCI essentially pointed to the uncertainty introduced by a possible Fernández comeback to say that, “although the Argentine equity market meets most of the accessibility criteria for Emerging Markets, the consistency and persistence of the relatively recent changes as measured in practice still remains to be assessed.”

Investors have also been expecting Macri’s government to implement structural economic reforms, including changes in the tax code and labor regulations. A Fernández victory could imperil these initiatives as she would have a strong voice on the Senate floor, said Blanco.

But Fernández is as polarizing as she is influential, which has led to increasing divisions within the Peronist party, which for 12 years was led by Fernández and her late husband and president from 2003 to 2007, Néstor Kirchner. Also running for the senate, and finishing third in the primaries, is Sergio Massa, who served under both Néstor and Cristina Kirchner. Finishing a distant fourth in the primaries was Florencio Randazzo, Fernández’s minister of interior and transport, who rejected an offer from his former boss to run on a unified ticket.

“Since the 2015 electoral defeat, several political groups within Peronism decided to challenge Kirchner’s leadership and present an alternative,” says Guido Ingrassia, a candidate for local council on Randazzo’s Justicialist Party ticket. “Peronism is very diverse, and the Kirchners only represent one side of it.”

In a recent visit to the country, political scientist Francis Fukuyama noted that “Argentina lacks credibility from foreign investors because it has alternated abruptly between neoliberal and populist policies.”

If Macri completes his presidential mandate in 2019, he would be the first non-Peronist president in Argentina’s history to do so. His party’s strong performance in the primaries on Sunday showed that many Argentines may be ready to embrace this change. But Fernández’s virtual tie was proof that many also are ready to choose a return to Peronism and, with it, to the populist policies that investors worry about – but that the less affluent, like Otavianni, remember with nostalgia. 

He is an Argentine journalist based in Buenos Aires. Follow her on Twitter at @LuciaWeiHe. 

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