Monday’s panic over Argentina’s weekend election results — the peso fell 15 percent and the S&P Merval stock index suffered its second worst rout in 70 years — may have been a bit overwrought. It was a primary election, after all, and the winning opposition candidate, Alberto Fernández, has denied any intention to default on Argentina’s debt.
But it sends an important message to Fernández, and his running mate, former president Cristina Fernández de Kirchner: before the October election, they must convince stakeholders in Argentina’s economy that they understand the need to carry on with incumbent President Mauricio Macri’s economic reforms, if by another name.
Fernández’s win was such a landslide, it sparked fears of a return to debt default, uncontrolled inflation and frenzied sell-offs, precisely the sort of trouble that Argentines thought they had left behind. But the new market mess is a panic foretold.
Argentina’s leaders have been fatally misreading economic cues for decades. Misguided austerity and a flawed tether to the US dollar in the late 1990s set off a currency collapse, riots, a run on banks, four presidents unseated in one 10-day stretch and, by 2002, the world’s largest sovereign debt default.
That debacle laid ground for the next. The Peronist tag team of Néstor Kirchner (2003-2007) and his wife and successor Cristina Fernández de Kirchner (2007-2015) vowed to reclaim the country from predatory creditors, and briefly revived growth — before going on to squander the global commodities boom and turn South America’s second-biggest economy into one of its most dysfunctional markets.
That wreckage helped propel Macri into office in 2015, on his market-friendly promise to restore Argentina to economic normalcy and the international community’s good graces. And he kept his word. Macri mended relations with global lenders, secured a rescue package from the International Monetary Fund, allowed the peso to float and belatedly engaged in the kind of fiscal probity that his populist predecessors had scorned.
Yet his structural reforms were hesitant. And he faced a record drought that punished Argentina’s competitive farm sector, as well as a global selloff of emerging market assets. So he failed to deliver growth, jobs or stable prices — much less persuade voters to give him a second chance.
Credit the Peronists for spinning Macri’s grief into electoral gold. Barring an unlikely comeback — Eurasia Group rates Macri’s re-election prospects at just 10 percent — Fernández is likely to be elected president in October, or in a run-off in December.
Yet here’s the irony: Macri may have moved too slowly and diffidently to put Argentina’s public accounts fully in order, but his policies are beginning to coax the country in the right direction. Whoever moves into the Casa Rosada in December will find little alternative but to carry them through.
Fernández must now be clear that he understands that any return to government economic controls and protectionism would be folly. On Monday night, he said Argentina needs to rework its economic model, but didn’t explain how. He’ll have to do better than that. As Alberto Ramos of Goldman Sachs put it, “Fernández not only needs to say the right things, but to convince people he means them, or else the markets will start to second guess him.”
To boost his credibility, Fernández could name someone with a track record in finance to reach out to creditors and the IMF, clearly signalling his commitment to follow through with the fiscal consolidation Macri has put in motion. Leave it to the ecumenical Peronists to work those free-market principles into the populist gospel of reform.
Such efforts may still fall flat unless Fernández, who has never run for national office, also shows what sort of leader he means to be. Can voters expect the pragmatist and conciliator he was when he broke ranks with the confrontational Cristina in 2008? Or will they be left with a mouthpiece for the mercurial Peronist power broker, bent on ruling by proxy and spending money Argentina doesn’t have?
The mayhem in the markets is a cautionary tale. Unless Fernández can shed his slate’s populist legacy and deepen his rival’s policy agenda, he will stumble. After a decade of economic chaos brought on by willful politicians, the last thing Argentines need is another tone-deaf leader.