Firms should closely monitor political dynamics within the Frente de Todos following the midterm defeat. While Vice President and former President Cristina Fernandez de Kirchner has yet to comment on the electoral results, she is likely to mobilize her base within the coalition to shift policymaking further left, while President Alberto Fernandez and his allies seek a more moderate approach. A scenario in which Fernandez de Kirchner takes the reins of the Frente de Todos could likely lead to a more challenging year for multinationals, particularly on the inflation and FX fronts. Firms should also pay close attention to developments surrounding the International Monetary Fund (IMF) deal and implement a multi-stage FX hedging strategy until at least Q1 2022, when announcements surrounding the agreement are expected.
Overview
Argentina held midterm elections on November 14, with a third of the Senate and half of the lower house up for re-election. Overall, the results were disappointing for the Frente de Todos ruling coalition. While Frente de Todos held onto its controlling minority in the lower house by a hair, it lost a Senate quorum—marking the first time the Peronists have lost control of the chamber since 1983. Additionally, Frente de Todos lost the election in several key districts, including the Buenos Aires province, where over 30% of the electorate resides, and in Peronist strongholds, such as Santa Cruz and La Pampa.
Still, the government’s post-PASO primary strategy, which included accelerated economic reopening, increased spending, and tighter price and capital controls, paid off. Frente de Todos regained some lost ground at a national level, posting 34% national support—up from around 30% in the primaries—with the Juntos por el Cambio opposition securing 42% of the vote.
After the midterm results trickled in, President Alberto Fernandez announced that his administration is planning to submit an economic plan to Congress in early December, with broad support from his coalition to move forward with the country’s pending IMF agreement.
Our View
While overall the government performed slightly above our expectations, risks that the midterm loss pushes Frente de Todos to continue to pursue unorthodox economic policies, worsening macroeconomic imbalances and derailing the IMF deal, persist. The midterm results will alter political dynamics in Congress, enabling Juntos por el Cambio to block controversial economic policies or push for progress on the IMF agreement, but the president does retain the ability to act unilaterally in certain economic policymaking areas. Although President Fernandez has expressed willingness to follow through with the IMF agreement, it is highly unlikely that he will be able to keep his coalition’s support in implementing fiscal consolidation measures, which the IMF is likely to require. Without the IMF agreement, however, Argentina faces debt and currency crises in H1 2022. We believe that the government will sign the agreement, which is likely to be approved by an opposition-led Congress, but it may try to renegotiate it after the first review, potentially triggering political and economic crises in late 2022.
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