Negative PASO result for Macri would unleash market turmoil, warn analysts

With the PASO primaries looming and polling gone dark, the question on the lips of most local and international observers is by what margin Frente de Todos presidential candidate Alberto Fernández will lead President Mauricio Macri by come Sunday night – and what will be the economic response come Monday morning. 

The prevailing wisdom is that a five percent or greater victory by Fernández over President Mauricio Macri would spook investors and international economic interests, exacerbating fears of a possible return to power for Kirchnerismo. If that were to come to fruition in October, it would likely signal a departure from Macri’s pro-free market policies. 

“For whatever reason five percent seems to be the magic number. If the lead is less than five percent, the market will take comfort,” Edwin Gutierrez, a portfolio manager for Aberdeen Asset Management in London, told the Times.

“If it’s greater than the five-percent gap then [Macri’s] got his work cut out for him, even assuming those third-party candidate supporters do defect,” he added. 

Should Fernández obtain a decent showing, possible economic effects could include “pressure on the peso and worsening inflation, forcing the government to keep interest rates high, which stifles growth,” according to Benjamin Gedan, director of the Argentina Project at the Wilson Center, a Washington, D.C.-based think tank. 

A recent report by Goldman Sachs economists working with the firm's Latin America investment research wing concluded that a six to seven percent victory by Fernández is the threshold to triggering an economic slide. 

"A difference of more than six to seven percent would be an insurmountable obstacle [for Macri], especially in a highly divisive and polarised political environment" the report stated. 

Not every analyst agrees there is a threshold. Matías Ranjerman, chief economist for economic research firm EcoLatina, urged against fixating on a five-percent threshold. 

“I don’t see it as something so linear,” Ranjerman said. “Five points to one side determines one thing, five points to another determines another.” 

Ranjerman added that a strong victory by Fernández would “unleash exchange pressures” for the peso, particularly if the Frente de Todos candidate kept up his “more radicalised” rhetoric on display in recent weeks. 

“The credibility of moderation for Alberto Fernández continues to evolve,” Ranjerman said. “Yet I understand there’s still a lot of possibility to recover it.” 

Fuelling fears

Fernández’s recent populist economic stances on the campaign trail has only fuelled fears for the markets and international observers.

“Alberto Fernández has generally calmed markets by emphasising a pragmatic approach to the economy," said Gedan. "But of late, his remarks about the exchange rate and monetary policy have raised eyebrows."

From vowing to decrease rates for the Leliq, a liquidity note issued by the Central Bank, to calls to negotiate subsidies for worker’s salaries, Fernández’s declarations have contributed to some of the peso’s recent volatility, said Guiterrez. 

“I’m kind of torn between how much he believes this and how much he’s doing it intentionally to undermine the peso, because he knows how key that is,” he added. 

Macri’s vice-presidential running-mate, Miguel Ángel Pichetto, launched a similar attack on Fernández Monday, saying the Kirchnerite candidate wanted to trigger a run on the banks, impact the exchange rate with the dollar and generate an economic scenario similar to the country’s crisis in 2001. 

Yet Fernández’s continued focus on the “social economic question,” remains his greatest appeal to voters, according to Julio Burdman, director of Observatorio Electoral Consultores. 

However, Burdman lauded the campaign of Macri and his allies for pushing back against polarisation and operating a campaign that has remained constantly in the public eye. 

“The campaign from oficiliasmo has been the best in 35 years,” Burdman told the Times. 

Both campaigns, however, remain somewhat marooned with consolidated support across age demographics. While a majority of older voters support Macri and his allies, Fernández and his Kirchernite allies have drawn support from the youth. This leaves both political factions vying for votes from the other side’s respective base of support, a tactic that's been on full display in recent weeks.

In recent weeks, for example, Fernández and national deputy candidate Sergio Massa, now back in the fold, have repeatedly highlighted the cost of medication for the elderly and retirement. Macri, armed with a robust social media team, has aggressively reached out to younger voters through technology, purchasing advertisement spots on social networks that depict young people showing their support for the government in selfie videos. 

“I think Macri is going to bet on the vote of younger people, who are a little more elusive in this last stretch of the campaign,” Burdman observed.

Provincial politics

For investors, the marquee race is between Fernández and Macri, which leaves the contest for Buenos Aires Province – where former economy minister Axel Kicillof is taking on Governor María Eugenia Vidal – as a “secondary” race, Aberdeen’s Guiterrez said. 

“If 'Fernández-squared' wins and Vidal wins, the market’s not really going to care,” Gutierrez said. “And vice versa. If Macri wins that’s what the market’s going to focus on.”

While Vidal has admitted she has pulled “from behind” of Kicillof in terms of support, the Juntos por el Cambio campaign is confident the governor has consolidated support in recent works. Lacking support in the south of the Conurbano, she still enjoys strong backing in its north and east, and has campaigned heavily in cities like Mar del Plata, Bahía Blanca and La Plata.

“Kicillof benefits from Cristina’s support in the former president’s political stronghold,” said Gedan of the Wilson Center. “That said, he has little appeal to many poor and working-class Peronists, and Vidal would probably dispatch with him easily if she were not burdened by an unpopular president in her party.”

Regardless of who triumphs Sunday and who eventually wins the general election in October, the country's entrenched economic issues remain pending. Furthermore, international investors and interests remain convinced that Macri will win in October. 

"I think they’re a little too confident that Macri’s going to pull this off," Gutierrez said. "Also they can be a bit complacent in terms of the amount of work he’s got to do." 

He added: "Yes, there’ll be a knee jerk reaction, the bonds will be marked up, but don't expect a big wave of optimism to grip Argentina because the challenges are vast."