Post PASO depression

The market’s violent reaction after Alberto Fernández handily beat Mauricio Macri’s ticket at the national level in the PASO primaries – giving him a solid chance of taking the October election without the need for a run-off – was on the cards for anyone observing Argentina’s political process. It was a known-unknown, as was the possibility that a mild defeat at the national level by the Juntos Por el Cambio (“Together for Change”) coalition – along with a solid performance by Governor María Eugenia Vidal in Buenos Aires Province, conditioning former economy minister Axel Kicillof’s aspirations, and therefore Cristina Fernández de Kirchner’s strategy of showing strength where her base is – would please the markets.

The problem here was expectations, which were severely misplaced. While the Frente de Todos (“Front for All”) tried to portray itself as optimistic, it was Macri et. al. who communicated through every channel that they were expecting a positive surprise. That, added to the pollster community which, across the board, showed a progressive strengthening of Macri and his candidates as the exchange rate remained under control, helped create the conditions for a bombshell result. The consequential damage of the run on the peso, the tanking of Argentine equities in Buenos Aires and New York, the closing up of financing, the surge in interest rates, the potential rise in inflation as prices are corrected, and the overall contraction in economic activity is, in part, irreparable. How big that part is remains to be seen. All of us have suffered the collateral damage.

Macri’s initial reaction at a Monday press conference, where he sought to blame Alberto Fernández and therefore the electorate for choosing the wrong side, added fuel to the fire. Macri and his chief strategists were still in campaign mode. They have lost touch with reality. The pesodollar exchange rate surged from 45 per greenback before the primaries to over 60. The Merval stock market index tanked 37 percent that day, a nd A r gent i ne equities in New York lost tens of billions of dollars in market value in a few hours. Investors and funds sitting on Argentine sovereign bonds suffered steep losses, to the point where some economists suggested the paper was trading in “restructuring territory.” As “the fear” took over, the price of assets, both in financial markets and the real economy, stopped making sense. The pass-through of the devaluation to store shelves means the deceleration of inflation, which was confirmed this week with July’s figure at 2.2 percent, is no more. Interestingly, the Central Bank run by Guido Sandleris stood on the sidelines on Monday, fuelling speculation that the decision to “let the peso run” was politically motivated.

Unsurprisingly, President Macri realised that in the middle of a panic, the nation is more important than the campaign. He phoned Fernández – who didn’t immediately take the call as he was “teaching class” – and then apologised to the population for his initial reaction, while announcing a battery of economic measures that, while anathema to his ideology and overall macroeconomic policy of the past three years, sought to reduce the pain for lower and middle-income families. These, along with the Central Bank’s non-intervention, mean the general guidelines of the agreement with the International Monetary Fund (IMF), Argentina’s current lender of last reserve, have been broken. It’s not clear whether the IMF was on board, but whoever Christine Lagarde’s successor ends up being, they won’t have it easy with their biggest borrower.

At the same time, it remains unclear what changes will come to Macri’s Cabinet. As always, Cabinet Chief Marcos Pena’s head is wanted on a spike, particularly within the ruling coalition. Seen as the main architect of the electoral failure, along with the destruction of Vidal’s political capital (she had sought to de-couple the provincial election so as to avoid being associated directly with the president on the ballots), Peña is today’s pariah. Along with political advisor Jaime Durán Barba, they had masterminded a string of electoral victories against the Peronist opposition led by Cristina that has finally came to an end, even if the PASOs are simple primaries. Nicolás Dujovne, economy minister, is also in the crosshairs, even if he was no more than the executioner of policies ordained by the IMF and ascribed to by Macri (austerity). Expect turbulence.

The country finds itself in a conundrum. An election that is not an election has prompted a potential “puppet candidate” into a virtual status of power. With a result that is no more decisive than myriad opinion polls that all proved to be horrendous at ascertaining the general sensations of the population, Fernández is being asked to “guarantee stability.” Yet Fernández is still in the midst of a heated campaign that has been marked by the intensification of the grieta, or deep polarisation. The ongoing uncertainty which has sparked “the fear” is self-inflicted in every dimension: the PASO primaries were unnecessary as they were nothing more than a national-level poll, the excessive optimism of the Macri administration was unfounded, the consistent diffusion of survey figures dictated market sentiment despite their widely reported incapacity to predict outcomes both domestically and abroad, Macri’s tone-deaf reaction signalled another major communications misstep... we could go on.

The public opinion debate of the day is whether Macri’s government is over. And, if so, how does he defend the common interests of the population while campaigning for October, not for the Presidency but on the congressional and municipal front? The other dichotomy is Alberto and Cristina. First, the former’s responsibility in helping Macri control the macroeconomic indicators that have gone haywire, even if this is against his electoral interest. For the latter, the question turns around whether her massive disapproval ratings weren’t a real proxy for the nation’s rejection of everything K, and how much she can flex her “power” muscle ahead of the real election, eroding Alberto’s power while gaining traction for her son Máximo and the Kirchnerite La Cámpora political organisation. There’s also Roberto Lavagna, who seduced a mere eight percent of the electorate in the primaries, but who is now coveted by both Fernández and Macri. Both sides want his votes and support, but Lavagna is still dreaming of becoming the candidate who makes the run-off against Alberto.

We live in post-modern days where technology has transformed everything. Traditional power structures have been turned on their heads, and while politics continue to be of interest to old elites, it is the power of the uninterested and angry that has become the leading force. Macri’s surprise 2015 presidential victory is a prime example, as was Donald Trump’s upset in the United States, the Brexit vote in the UK, Jair Bolsonaro in Brazil, and Cristina Fernández de Kirchner’s surprise return to the first leagues in the PASO primaries. Polarisation, extreme distrust of the political class, a lack of interest in the mainstream media’s interpretation of politics, stagnant and falling middle and lower class wages across the globe, and the smartphone have all conspired to make unpredictability the name of the game. There’s a long way to October, and even farther until November.