No Rubric

“Primaries” in Argentina: the return of the “left populists” and the strongest collapse of markets in history

From the beginning of this week, economists have been very worried: the worst collapse in the modern history of the international financial system. Argentina’s stock index for the day (August 12) was almost halved. Over the past 70 years on 94 world exchanges, a similar situation occurred only once. The international community received such a response from the financial market because of the “primaries” in Argentina, where opposition candidate Alberto Fernandez won. What guarded investors and economic analysts so much? Whose candidatures did the Argentines cast their votes?

It is worth looking at the history of this issue and understanding what the first round of the presidential elections in Argentina is. The “primaries” as a preliminary stage of the election race, were introduced in this Latin American country in accordance with the new election law of 2009. During the “primaries”, Argentine citizens choose candidates who will represent their parties in the elections. Unlike other countries in which there is a stage of “primaries”, the future presidential candidates in Argentina are determined not only by members of a particular party, but also by all citizens of the country. According to Argentinean legislation, only applicants who have won at least 1.5% of the vote for the “primaries” can compete for the presidency. However, paradoxically, this year all political forces put up only one candidate. Thus, this time the “primaries” became a kind of public opinion poll, allowing you to see the alignment of forces before the presidential elections, which will be held on October 27.

The current Argentinean leader, Mauricio Macri suffered a crushing defeat at the preliminary stage of the presidential elections, losing about 15.5% of the vote to opponent of  the leftist camp Alberto Fernandez (Spanish – Alberto Ángel Fernández). This became known on Monday, August 12, after counting more than 80% of the ballots. As a result, the Argentine peso exchange rate on the currency exchange in Buenos Aires instantly fell by 14% against the US dollar. Markets foresaw Marci defeats, but the gap was much larger than predicted, “Goldman Sachs” analysts say. In addition, the Argentinean “Merval” Stock Index fell immediately by 30 percentage points, and as a result lost 48%. In local currency, it “fell” by 12%, which was the strongest drop since 2008.

It is worth recalling that the winner of the “primaries” this year, Alberto Fernandez from the “left” flank from May 2003 to July 2008 headed the government of Argentina during the presidency of Nestor Kirchner (Spanish – Néstor Carlos Kirchner), and then Cristina Kirchner (Spanish – Cristina Elisabet Fernández de Kirchner). By the way, at the current presidential elections, Fernandez nominates his candidacy in conjunction with ex-head of state Cristina Kirchner, who is running for vice president.

Kirchner is known for her achievements in building a developed social policy and difficult relationships with foreign investors, in particular, the fight against loan holders who do not want to take on part of their obligations to refinance state loans. The “Buenos Aires Times”, the Argentine capital’s newspaper, describes the main features of Kirchner’s presidency: “Closed economy, tax and currency imbalances, strong trade union movement, tight regulation and a high level of corruption”. Until now, she is accused of corruption and distortion of the real economic indicators of the state. When, as a result of the high inflation rate, the Argentines switched to settlements in US dollars, she banned all types of foreign exchange transactions, which led to an outflow of investors. During her presidency, a crisis of 2013-2014 occurred during which the Kirchner government was unable to agree on the restructuring of the public debt.

For the third year in a row, the Argentinean economy has suffered from a recession, which international analysts have called the “echo of the financial crisis”. It is also worth recalling that Argentina has long been in distress: in total, the Latin American state experienced eight defaults, two of which this century. Over the past 12 months, inflation has remained at around 40%. According to statistics, one in ten Argentines today is unemployed. A number of experts believe that the economic crisis began in this Latin American country precisely during the presidency of Cristina Kirchner. However, as the results of last Sunday “primaries” show, most Argentines believe in the “left” revenge and the ability of the political Fernandez-Kirchner tandem to restore the country’s economic situation.

As noted earlier, the second round of presidential elections in Argentina is scheduled for October 27. To win, a candidate must gain more than 45% of the vote, or 40%, if the separation from the closest opponent is at least 10%. If the same mood persists in society, the current leader may lose power. It is worth adding that the separation of the “left” opposition turned out to be so unpredictable and significant that it was an additional shock to the financial markets.

As a result, according to data on August 14, the national currency (Argentine peso) collapsed by more than 30%, updating another historical low. The State Central Bank tried to stop the panic in the markets by raising the key rate immediately by 10 percentage points (up to 74%). International analysts are focusing on the fact that bidders are beginning to lay a default scenario in prices.

This year, about 34 million Argentine citizens have the right to vote in the presidential election. Based on official data from the Argentine CEC, 75.78% of respondents participated in the “primaries”. According to the results of the first round, the gap between the main rivals is very significant and amounts to about 15%: about 47.26% voted for Fernandez, and 32.35% voted for Macri.

Is there a chance for the current leader to remain in power will show the second and decisive round of the presidential elections. By voting for the Fernandez-Kishner tandem, voters reject the austerity measures introduced by President Mauricio Macri to stabilize the Argentine economy. In 2018, Macri made an official statement that the country was “living beyond its means”, so he halved the number of ministries, introduced additional duties on the export of goods and raw materials in order to increase export fees and send more money to repayment of the budget deficit. The current leader had to cut social spending by canceling some subsidies for electricity and gas, which led to higher prices. The measures introduced by Macri made it possible to obtain a loan of $ 50 billion from the IMF, but provoked large-scale protests from the country’s inhabitants. Political analysts warned the government that such strict conditions set by the IMF for a loan and the introduction of budgetary savings would lead to a decrease in the popularity of Mauricio Macri, which, as a result, demonstrated “primaries”.

In turn, the Fernandez-Kirchner tandem promises to invest budget funds in infrastructure, return to financing social programs, create new jobs and raise salaries. Despite the fact that Mauricio Macri continues to “deal” with the legacy of his predecessors, Argentine citizens are once again ready to vote for the “left” candidates, as shown by the first round of the electoral race.

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