Argentina’s presidential election is increasingly poised to usher in a pro-market government after the ruling bloc coalesced around centrist Economy Minister Sergio Massa.
The nation’s bonds due in 2035 rallied about 1 cent on the dollar to 28.91 cents on Monday, the highest since February, following an announcement Friday that Massa would represent the ruling Peronist coalition in the October election. The decision was a sign that Vice President Cristina Fernandez de Kirchner, who has pushed for many of the measures that have left the country in dire financial straits, is losing power.
Kirchner was seen as backing a close ally, Interior Minister Eduardo de Pedro, who dropped out at the last minute to support Massa, who has close ties to Biden administration officials.
“All of the options are a lot more pro-market,” said Mariel Fornoni, director of polling firm Management and Fit in Buenos Aires. “The context today is different. This is Cristina losing power.”
The shift to the right in Argentina comes as a leftist tide has washed over Latin America in recent years. Widening inequality and social discontent during the Covid pandemic pushed voters in Colombia, Chile, Peru and Brazil to elect leftist presidents. Argentines have lost confidence in their own populist government after its policies deepened an economic crisis that began in 2018.
In an about-face Friday, de Pedro ended his bid before the June 24 deadline for candidates just a day after he announced he’d run, clearing much of the field for Massa to be the main Peronist candidate. One other Peronist, leftist Juan Grabois, remains in the race.
With Massa favored to win the Aug. 13 primary, market-friendly candidates compose a fragmented field. Hard-liner Patricia Bullrich and centrist Buenos Aires Mayor Horacio Rodriguez Larreta face off in their own primary for the main, pro-business coalition. Outsider libertarian economist Javier Milei is also a key player in this year’s race.
“If the opposition gets too polarized, it leaves a wide open space in the middle that, strategically, the Peronist bloc will try to fill, and a moderate discussion could be good news for the private sector,” said Juan Cruz Diaz, managing director of Cefeidas Group, a political consultant.
The candidates have a near-impossible task ahead, with triple-digit inflation over 114%, a looming recession and nearly 40% of the population below the poverty line. Argentina is also out of dollars, mired in a brutal drought and faces deadlines to pay back the International Monetary Fund on a $44 billion program.
Minister and Candidate
To be sure, Massa, who is leading Argentina’s negotiations with the IMF, hasn’t revived investor optimism as economic chief, with sovereign bonds trading below 30 cents on the dollar for much of his 10-month tenure. He’s expanded price controls, tightened import restrictions and implemented multiple exchange rates.
With repayments to the IMF due by the end of June, his economic team is rushing to land another staff-level agreement. As candidate and minister, Massa may have more leverage to get more money up front from the IMF by shifting currency policy in a more sensible direction.
“As a presidential candidate, Massa may gain some extra support from his friends in the Biden administration, hence some more leverage in dealing with the IMF,” says Hector Torres, a former IMF board director who represented Argentina.
Investors shouldn’t expect Massa to suddenly pivot toward more pro-market policies, says Martin Rapetti, director of consulting firm Equilibra. However, Massa’s overnight shift from a lame duck minister to the Peronist frontrunner not only boosts his leverage in negotiations with the IMF, but also Argentina’s powerful labor unions, businesses and other key economic sectors.
“It’s not the same for any of these actors to negotiate with a minister that they know that in four months won’t have any power versus a minister that could become the next president,” says Rapetti. “Massa’s ability to coordinate and negotiate as a minister today has strengthened significantly.”
