Argentina’s Foregone Election and the Fernández Administration

A version of this article was originally published by the Hill on October 25, 2019.

In Sunday’s Argentine presidential election, Alberto Fernández defeated President Mauricio Macri by a 48 percent to 40 percent margin. Fernández will inherit a country mired in stagflation with an unsustainable debt burden that he will begin to renegotiate this week, all while adopting a foreign policy that will end Argentina’s status as one of the United States’ closest allies in Latin America.

President-elect Fernández’s immediate challenges will include an annual inflation rate above 50 percent, a peso that has lost more than 300 percent of its value against the U.S. dollar over the past 18 months, and an economy that will shrink by 3 percent this year—all combined with a stubborn structural primary fiscal deficit and an unsustainable debt burden that includes more than $150 billion in debt payments (capital and interest) set to come due during Fernández’s four-year term.

With debt payments in 2020 alone of more than $50 billion, one of Fernández’s first steps will be negotiating with creditors to restructure the country’s debt. There is no question Fernández will require creditors to agree to a rescheduling of debt payments, kicking them down the road to provide breathing room in 2020 and in 2021 when pivotal midterms will be held. 

But many Fernández advisers believe rescheduling alone will do little to clear the cloud of potential default floating over the country, which in turn will inhibit the foreign and domestic investment needed to spur economic growth. Creditors should therefore expect to be asked by Fernández to write-down a non-trivial portion of their loans to Argentina in addition to the rescheduling.  

If Fernández does not get at least the minimum type of debt restructuring he feels he needs to avoid a severe economic crisis, he will have no qualms about defaulting, just as his predecessors have done over the past 40 years (e.g., in 2001 and 1982). Argentines have learned that while a default severely reduces the flow of international credit in the short to medium term, the credit spigot will eventually be opened back up.

Under President Macri (2015-2019), Argentina has been a valuable U.S. ally, especially related to U.S. Latin American policy. This includes Argentina’s strong support for democracy in Venezuela via membership in the Lima Group; active military and intelligence cooperation with the United States to combat drug-trafficking and terrorism in the hemisphere; respect for the rule of law; and openness to U.S. investment in Argentina to help develop the world’s second-largest shale gas reserves, in the country’s Vaca Muerta shale play. 

Argentine foreign policy will undergo a notable shift under President Fernández. Argentina will withdraw from the Lima Group and adopt a “neutral” position vis-à-vis the Maduro dictatorship (which Fernández has argued is not a dictatorship). Relations with the United States will become frostier, particularly as long as Donald Trump is president, and Argentina will restore more robust and cordial ties with China and Russia.  

Tensions with Brazil, Argentina’s largest trading partner, will increase, as Brazilian President Jair Bolsonaro is no great fan of Fernández and especially not of Cristina Fernández de Kirchner. And the feeling is mutual, with Alberto Fernández and Cristina Fernández de Kirchner much more in sync politically and ideologically with the opposition Brazilian Workers’ Party of the imprisoned (on corruption charges) Lula Da Silva.
The one area where Fernández is least likely to alter course, at least in the short term, is in policies affecting energy-related investment, since he recognizes the pivotal importance of the development of the Vaca Muerta to Argentina’s economic future. As a consequence, Fernández will do everything possible to maintain the flow of foreign investment needed to develop the Vaca Muerta, investment that will come largely from international oil companies based in the United States and Europe.

A question presidential challengers often ask voters, is “Are you better off than you were four years ago?” Today the answer for a majority of Argentines is “no.” Macri’s failure over the past four years to right the Argentine ship is yet another disappointment for a country that, while endowed with exceptional natural and human resources, has been enmeshed in a century-long economic decline that seems to know no end. 
Given the economic challenges facing the country, Fernández has his work cut out for him if he is going to restore growth and prosperity and thereby avoid a similar negative verdict from Argentine voters in 2023. 

Mark P. Jones is a senior associate (non-resident) with the Americas Program at the Center for Strategic and International Studies in Washington D.C. He is also the Joseph D. Jamail Chair in Latin American Studies, the James A. Baker III Institute for Public Policy’s political science fellow, the director of the Master of Global Affairs Program, and a professor in the Department of Political Science at Rice University in Houston, Texas.
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Mark P. Jones