Alberto Fernández strolled to victory in Sunday's presidential elections in Argentina, a widely-expected outcome after he thrashed incumbent President Mauricio Macri in August's PASO primaries. After all the vague campaign speak, investors are now keen for clarity on policies.
One thing is almost certain: Fernández – voted in by Argentines who've been struggling to make ends meet – will reel in Macri's market reforms to ease their economic pain. That means more government intervention. But how that will play out in practice remains to be seen, especially with several forces in his Peronist coalition tugging in different directions.
For commodities and the energy sector, there have been a few clues.
Crops & Beef
Farmers expect Fernández to hike taxes on crop and beef exports worth more than $US20 billion a year to fund social spending and service debt. In anticipation, growers have been increasing sales to traders, with export permits being issued at twice the normal pace.
These are the rough current tax rates: soybeans 25 percent; corn, wheat and beef seven percent. Wheat and beef might especially be targeted for increases because flour-based foods and red meat are Argentine staples.
The Frente de Todos leader says he wants to maximise shipments, but he and his aides have also voiced concerns about exports driving up domestic prices. Taking a page out of the book of former leader and vice president-elect, Cristina Fernández de Kirchner, Fernández may look for ways to lower prices at home and tame inflation running at 54 percent. Such a move would risk a swift reversal of booming grain and beef shipments.
“I worry about the path we're headed down,” said Santiago Fernández de Maussion, a farmer in Córdoba Province. “We need access to global markets.”
As Fernández takes a bigger slice of the agricultural pie, farmers could shift to soybeans – even though they're also likely to get hit with a tax hike – because they're cheaper to grow. That trend has already emerged in the current planting season. “We'd go back to a process of soy monoculture,” said Gustavo López, an independent agribusiness consultant.
Shale Oil & Gas
Vaca Muerta is the world's next big shale hope and Argentina's best chance of raking in new export dollars. It desperately needs investment to grow and shale dollars to shore up the peso, which has slumped 7 percent in the past two years. Macri knew that and spurred drilling. While shale production is still small, it's helped to close the nation's energy trade deficit.
Across the oil industry, there's a sense that Fernandez, too, understands the importance of Vaca Muerta and will make it a pillar of his energy program. Guillermo Nielsen, one of his advisers who is being touted for a ministerial role, has even been drafting a Vaca Muerta law that would give drillers a firm regulatory framework for years to come.
How Fernández tackles the broader economy will be crucial. He's expected to tighten capital controls brought in by Macri to protect international reserves. That's not good news for foreign investors who need to repatriate profits. He's also hinted at assuaging increases in electricity and natural gas bills, which could affect gas drillers that supply both markets.
Some industry observers think Fernández may provide drillers with a capital-controls loophole, which is what Fernández de Kirchner did in 2013 to lure Chevron Corp. to Vaca Muerta. It's also unclear what Fernández will do with oil-price caps. Macri imposed a 90-day freeze on fuel prices at the pump that expires in mid-November. Producers are paying for the freeze and shale drilling has slowed as a result. In particular, state-run YPF SA needs revenue from fuel sales to fund shale drilling.
Utilities
Argentines' electricity and natural gas bills have soared in the last few years as Macri curbed subsidies and ended a decade of price caps for utilities. Fernández has promised to "un-dollarise" prices. While it's unclear how that will play out, the general consensus is that any intervention that seeks to weaken the link between energy prices and the US dollar – which in turn would shield consumers from further currency deprecation – will hit transport and distribution companies hardest . They include TGS SA, Metrogas SA and Edenor SA.
Mining & Lithium
Argentina is home to a huge gold mine, Barrick Gold Corp.'s Veladero, and companies are exploring for lithium in Andean salt flats. As with agriculture and shale, Fernández has voiced support for mining exports. Mineral shipments are needed to boost inflows of hard currency. But fears remain about a return to interventionism, especially as that could mean an increase in export taxes and tougher capital controls.
by Jonathan Gilbert, Bloomberg
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