Argentina Politics: Incumbent President Fernandes Set not to Be Re-elected

Complex Economic Situation

Inflation in Argentina has risen to the highest since its hyperinflation years in 1991. The y/y figure reached 95%. Although it avoided triple digits as many market participants were previewing, Argentina registers one of the biggest inflation in the world and getting out of this cycle seems difficult as the country mostly leans on unorthodox measures, avoiding applying a strong fiscal adjustment and keeping real interest rates in negative terrain. Wages are still lagging inflation and most of the rise were registered in the food and beverages basket – especially affecting the poorest. 

Figure 1: Argentina Annual Inflation (y/y, %)

Source: Inflacion Verdadera and INDEC

Growth in Argentina surprised during 2022 as the latest forecast point to Argentine economy haven grown  above 4% (y/y). However, most of this growth occurred due to a weak base from 2021 and pent-up demand from the full re-opening of the economy. We foresee 2023 to be a difficult year for Argentina. Growth will be constrained by a high inflationary environment which will constrain consumption and investment, while we also forecast weaker external demand due to the global slowdown. We are forecasting  a marginal growth of 0.5% for Argentina in 2023.

 Figure 2: Monthly Economic Activity Index (2019 = 100, Seasonally Adjusted)

Source: INDEC

Deal with the IMF

In the latest review the IMF showed that they can be flexible in their targets. Argentina has been facing difficulties to comply with the reserve accumulation clause, but had been successful in reducing the primary deficit and the monetary financing. For 2023, Argentina will be able to disburse an additional USD 17 Bn, which corresponds to around 30% of Gross Reserves. However, in 2023 the same amount Argentina receives they will have to return in payments of interest and amortization to the IMF.  Thus, to accumulate reserves they will have to lean on their exporter sector, which have been constantly clashing with government due to the unfavourable exchange rate they access.

Additionally, the latest review of the deal gave permission to Argentina to create additional line of exchange rates, which was previously vetoed by the deal. This will be relevant as the success of the “Soybean dollar” (which allowed Soybean exporters to temporarily export their harvest at a favourable exchange), is likely to indicate that new temporarily FX line are on the pipeline for the agricultural exporter sector. 

All in all, we believe the IMF deal, which has disbursement to occur until 2024, will  go on even if the government fails to meet the quantitative targets of the deal, with the IMF relaxing some of the targets. However, the next government will have a bomb to disarm as repayments to  the IMF will start, then Argentina will need to accumulate reserves by its own.

Supreme Court political trial to difficult economic reforms

In one of the latest political events in Argentina, President Alberto Fernandes has submitted to the Congress a political trial of the Supreme Court. This happens after Vice President Cristina Kirchner was found guilty against corruption accusations and Fernandes stated in the federal government it will not comply with Supreme Court decision over taxes distributions with Buenos Aires Province, which is ruled by the opposition.

During the next three months the Congress will debate whether to impeach the Supreme Court members. The government coalition holds the necessary votes to open the judgement but not the necessary 2/3 votes to impeach any of the judges. The opposition coalition has already stated that they will not back the trial, thus, Fernandes attack on the court has little chance of success. However, any economic measures that need the Congress approval is set to be frozen, while the political trial occurs. This will be particularly damaging to Minister of Finance Sergio Massa as he will have his hands tied during the next 90 days.

Ruling Coalition Broken

Fernandes won the election for “Frente de Todos” heading a coalition formed by Cristina Kirchner (Vice President) and Sergio Massa (Minister of Finance). Several of Fernandes measures were heavily criticized by members of the internal coalition especially the economic ones. Since Fernandes is the President it would be natural that he would be the chosen one to run for the election. However, the low popularity of his government and its divided coalition pose doubts who will indeed be the candidate. In a surprising move, Cristina Fernandes has already stated that she will not run for the election.

The Possible Candidates

We believe the elections in October will be a clash between the ruling coalition “Frente de Todos” and the coalition which ran Argentina between 2016-19, “Juntos por el Cambio”. Neither coalition has a clear candidate but we take a look at possible candidates.

The alternatives to Alberto Fernandes is clearly the current Minister of Economy Sergio Massa, if Argentina starts to perform better it is possible that he will fight to gain control of the ruling coalition. Other options include Eduardo Wado Pedro, which is currently Minister of Interior. He is the closest to Cristina Kirchner who will be highly influential to define the “Frente de Todos” candidate.

The other coalition, “Juntos por el Cambio”, still do not have official candidates. Mauricio Macri former President still have strong power in the coalition but several members believe it would be good to appear with fresh candidates. Horacio Larreta, current mayor of Buenos Aires who is viewed as a moderate candidate could perform well in the election. The other is Patricia Bullrich, who leads the PRO and represents the radical antikirchner wing of “Juntos por el Cambio”.

We believe “Juntos por el Cambio” will come out victorious from the elections with whoever runs for the election. 2021 Legislative elections showed a strong support for this coalition and the poor economic performance during 2023 is set to weaken further “Frente de Todos” Coalition. As candidates and their vision became clear we will update our analysis.