Fernández’s defeat in parliamentary primaries sparks euphoria in Argentine stocks on Wall Street

RIO DE JANEIRO, BRAZIL – “We must have done something wrong”, lamented Argentine President Alberto Fernández in light of the defeat suffered by his coalition in the parliamentary primaries, known as PASO, which unleashed a diametrically opposite reaction in the financial market.

Rises of 17.04% in Central Puerto and 10.87% in Pampa Energía reflect the Argentine shares’ euphoria started this week on Wall Street. In contrast, the Merval index rose 5.5% at a local level, the country risk fell 4%, and the blue dollar dropped 2.2% to 181 Argentine pesos per dollar, in its biggest drop in four months.

For Miguel Boggiano, CEO of the Buenos Aires-based consulting firm Carta Financiera, investors’ interpretation of the results is “quite simple: the market rises because it sees a high probability of the end of Kirchnerism in the government in 2023,” he says.

From his point of view, “yesterday’s signal goes far beyond November. It is a categorical defeat for the ruling party, it lost at all levels. It even lost by five points in its main bastion, which is the province of Buenos Aires.”

Ignacio Labaqui, a political scientist of the Catholic University of Buenos Aires, explains the “beating” received by the Casa Rosada, indicating that “if November’s result are a replica of yesterday’s, the government would lose nine seats in the Chamber of Deputies and would no longer be the first minority in the Lower House. Worse still in the Senate, where it would lose six seats and would not have its own quorum”.

The result at national level shows that the main opposition force, Juntos por el Cambio (Together for Change), led by former President Mauricio Macri, obtained 40% of the votes. In comparison, the ruling Frente de Todos (Front for All) obtained 32%.

“To make matters worse, it was not the most voted force in the province of Buenos Aires, where it had a terrible election, despite competing with the unified Peronism,” Labaqui points out.

Additionally, with a turnout of around 68%, there are clear doubts about the government’s capacity to revert the scenario between now and the November 14 elections. “I do not believe at all that they will be able to recover”, indicates Boggiano, specifying that “normally the turnout is around 80% and I believe that the people who did not turn out will twist the course even more in favor of the opposition.”

This analysis is shared by Labaqui, who explains that “in general, between the PASO and the legislative election, participation increases and that can alter the result, but those who vote in the legislative election who did not vote in the PASO tend to vote mostly against Peronism. That was the case in 2015, 2017, and 2019.″

In this context, Guido Lorenzo, an economist at the University of Buenos Aires, also believes that the market is extrapolating the results to a possible defeat of Kirchnerism in 2023, while in the immediate term, it implies “a rebalancing of power, which in turn generates the expectation that in the next two years a different economic course will have to be taken.”

In this regard, Marcelo Elizondo, director of the Argentine consulting firm Desarrollo de Negocios Internacionales, states that “there are expectations that the government will lose political strength to carry out its agenda,” specifically “the plans for more statism, such as the nationalization of some companies, more regulation in terms of pricing and tariffs, or a higher budget deficit for the rest of the year with spurious financing, because there is no access to the capital market.” According to him, “all this may be modified by this new scenario”.

However, “Argentina’s problems persist, and it seems to me that the euphoria is a little unjustified”, warns Lorenzo.

A similar view is offered by Elizondo, detailing that the country “has a fragile exchange rate situation ahead, with a delay in the official exchange rate and a parallel market that almost doubles the official one, it has debts to be covered in pesos and dollars, it has a budget deficit from now on that it may have to solve with monetary emission, in circumstances in which it has a huge monetary policy problem because there has been an enormous emission of pesos that has been absorbed by short-term instruments of the Central Bank.”

On the other hand, he highlights that Argentines are left with “an enormous division within the government coalition, and it is not known how it will be resolved. President Fernández is very weakened, and so is Vice-President Cristina and the cabinet, which will surely have to be refreshed. The question is who defines the agenda with a government that has an internal leadership crisis and a huge problem of political capital.”

In this context, he indicates: “The first reaction of the market is positive, but we will see later on how it continues.”