Argentina Elections Preview: Milei the Favourite but a Run-off will be Needed
Argentina is poised for a transformative election on October 22, with Javier Milei and Sergio Massa likely headed for a runoff. Milei's radical economic agenda faces practical obstacles, necessitating moderation. Despite these challenges, 2024 holds promise with improved agricultural prospects and advances in the gas sector, potentially boosting Argentina's economic outlook.
Figure 1: Votes Intentions
Source: RTVT on Oct. 15
On Oct. 22, Argentina is gearing up for a pivotal electoral event, with citizens casting their votes to determine the next President, along with a third of the Senate and 137 seats in the 270-member Chamber of Deputies. In the recent national primaries, the far-right candidate Javier Milei secured the most votes, closely trailed by Sergio Massa, the Minister of the Economy, who now represents the center-left ruling coalition. The traditional center-right faction, led by Patricia Bulricht, claimed the third spot. Current indicators suggest that a similar outcome may persist in the upcoming general elections. To secure an outright victory, a candidate must either surpass 50% + 1 of the vote or secure 45% with a 10-percentage-point lead over the runner-up, making a runoff election highly probable.
As it stands, the most likely scenario involves a runoff between Javier Milei and Sergio Massa, and we anticipate Milei emerging as the victor. Following years of voting for conventional political figures for the presidency, Argentina appears poised to veer toward an unconventional leader who pledges to resolve the country's economic woes. Milei, self-identified as a Libertarian advocating pro-market policies, has pledged to close the Central Bank of Argentina and transition to a dollarized economy. Nevertheless, these proposed measures currently appear unattainable.
It is worth noting that Argentine institutions are functioning relatively well, and any substantial changes proposed by Milei will necessitate approval from the Legislative and Judiciary branches. Consequently, he will likely need to engage in conventional political maneuversmanoeuvres and garner support within the Congress. While it is improbable that his movement, "La Libertad Avanza," will secure a majority in Congress, a fragmented legislative body is a probable outcome. However, Milei's advocacy for dollarization is further weakening the Argentine Peso as it creates more uncertainty, consequently exerting inflationary pressure.
Barring any unforeseen developments, we anticipate that Milei will need to moderate his rhetoric and ultimately abandon his plan for dollarization, adopting a pragmatic approach to international trade, as Argentina will need to increase exports to amass reserves. Additionally, his administration will need to curtail public spending to reduce the deficit and prevent further monetary financing emissions from the BCAR. Furthermore, discussions with the IMF will be indispensable to ensure compliance with the remaining terms of the agreement, the final disbursement of which is slated for 2025.
What may work in Milei's favor is the projection that 2024 will be less challenging than 2023. The absence of recurrent droughts suggests a stronger agricultural output, facilitating export growth. Additionally, the full operation of the "Vaca Muerta" gas pipeline will curtail Argentine gas imports and may even enable Argentina to export a portion to Brazil.