Argentina Elections Run-off: An Open Race
Argentina faces a critical election on November 19, with Javier Milei and Sergio Massa in contention. The victor confronts economic challenges, including a 142% inflation rate and a projected 2.2% GDP contraction. Political dynamics hinge on alliances, and market sentiment favor Milei, signalling potential fiscal adjustments. The future, post-2023 droughts, holds promise for economic recovery.
Argentina is poised for a crucial electoral decision on November 19, determining the occupant of the Presidential seat on December 10. The contest features the far-right Libertarian candidate, Javier Milei, against Sergio Massa, representing the ruling Peronist coalition. Polls present a divided outlook, with some placing Milei ahead and others favoring Massa, resulting in an equal probability for each candidate.
The victor faces a formidable challenge given Argentina's economic landscape. The nation grapples with an alarming inflation rate of 142%, showing no signs of abating in the coming months. Projections indicate a contraction of approximately 2.2% in GDP, and dollar reserves are dwindling to unprecedented lows. The fiscal deficit, standing at around 3% of GDP, is being partially financed by the Central Bank of Argentina, exacerbating inflation. Moreover, the incoming President is expected to renegotiate the existing agreement with the International Monetary Fund (IMF).
Sergio Massa secured a surprising victory in the first round, but third-place contender Patricia Bullrich has pledged support to Milei. Milei's chances hinge significantly on converting Bullrich's votes. In the event of a Milei triumph, challenges loom in his relationship with the Congress, given his party's minority representation. Milei would rely on the support of Bullrich's coalition, Juntos por el Cambio. Conversely, if Massa prevails, despite having the largest representation, he lacks a majority, necessitating negotiations with the opposition. Massa, known for his political acumen and adept negotiation skills, faces the task of building consensus.
The government has temporarily frozen the official exchange rate until the second round, with a potential major devaluation looming thereafter. Massa's strategy centers on Argentine subsidy policies, acknowledging their fiscal cost but aiming to alleviate concerns about potential increases in public service costs under Milei's leadership.
Market sentiment appear to favor Javier Milei. While the dollarization proposal may be deemed impractical, Milei is perceived as more inclined to implement a robust fiscal adjustment compared to Massa's preference for a gradual approach. Looking ahead, 2024 holds promise, with a more favorable outlook due to the absence of the severe droughts that impacted harvest productivity in 2023. This positive shift is expected to enable the Central Bank of Argentina to build reserves, coupled with a forecasted 1.4% economic recovery.