Never a Dull Moment in Argentina
June 17, 2019As Argentina gears up for its presidential election next October, President Mauricio Macri surprised everybody on June 9 with his choice of vice president: Miguel Pichetto, the leader of the Peronist majority in the Senate. The announcement was well received by the markets. Argentina’s country risk premium, which had been hovering around 950 basis points, dropped by about 100 basis points. The local equity market also rallied significantly on the news.
Most political analysts praised the move. The consensus is that Pichetto will not only increase Macri’s electoral base (not clear by how much) but also, and more importantly, would help him forge the political alliances that would be critical to enact much-needed and delayed structural reforms. So his VP choice is considered a win-win.
Following Macri’s announcement, former economy minister Roberto Lavagna announced he had chosen Salta’s governor Juan Manuel Urtubey as his vice-presidential running mate. Lavagna is an independent and Urtubey a Peronist. As a result, the three strongest contenders for the presidency have at least one Peronist politician on the ticket. The third contending presidential/vice-presidential formula, of course, is the Alberto Fernandez-Cristina Fernández de Kirchner formula, with Cristina Kirchner’s decision to run herself as the VP to her former chief of cabinet Alberto Fernandez interpreted by many as a way to broaden her own political base and to distract attention from the many judicial investigations into alleged corruption during her earlier eight years as president.
There are two alternative ways of interpreting this situation: a) the sure winner in the next election will be the Peronist party, b) the fragmentation of the Peronist party is a prelude to its political demise. (However, in 2003 two Peronist candidates competed for the presidency, and the party didn’t disappear.)
Be it as it may, electoral uncertainty remains high. Polls suggest that Macri-Pichetto is competing head to head with Fernández-Kirchner, with about 30 percent of the electorate each (plus or minus 5 percent). Historically, the candidates of the extreme left have received between 3-5 percent of the votes. The rest of the electorate remains undecided. Lavagna poses a more serious threat to Macri than Fernández. He may attract voters disaffected by Macri’s uneven handling of the economy, which has left inflation likely to end 2019 at close to 40 percent with the peso having lost half its value in the last year.
Macri’s victory critically depends on voters’ fear that Cristina Kirchner (expected by most to be calling the shots for President Alberto Fernández if he is elected) would take Argentina back on a populist and authoritarian path, like that of Venezuela. The political polarization that has marked Argentina for so many years is only looking to be a stronger factor in this year’s election and is a factor that is expected to work in Macri’s favor. Whether it does or not, will become evident as the electoral timetable unfolds in the next few months. The presidential election process is a remarkably complex one and will with the finalization of presidential formulas and legislative and mayoral candidate then proceed through three steps: the pre-election primary (also called PASO) on August 11 (which really are not primaries but a test-run of the election itself), the first round of the elections on October 27, and the second round on November 17 if no sufficiently large majority wins in the first round. If the Fernández-Kirchner formula emerges as the winner in August, it is likely that a strong polarization between Macri and Fernández will occur, setting the stage for the confrontation that Macri and his advisers expect and see as their best chance of a second-round victory. No candidate is realistically expected to achieve a necessary majority in the October first round.
Whoever wins in October/November will face a daunting task. The Argentine economy has stagnated for the last eight years. The productive sector is burdened by high taxes and regulations, government spending is at historically high levels, and the bond markets are closed. Doubling down on populism, especially in a period of low commodity prices and scarce fiscal resources, is not a viable option without a radicalization of democracy Venezuelan style, which a majority of the Argentine electorate opposes. On the other hand, weaning the economy off populism will require structural reforms that have proven to be politically difficult to undertake and implement. Stay tuned.
Emilio Ocampo is a senior associate (non-resident) with the Americas Program at the Center for Strategic and International Studies in Washington, D.C.
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