On September 12, Argentina held its PASO primary elections to enable each coalition to finalize its candidate list for the November midterm elections. A third of the Senate and half of the Lower House are up for grabs during these elections, which could shift the balance of power in Argentina’s Congress. Amid growing discontent surrounding COVID-19 management, rapidly rising poverty, and close to 50% annual inflation, the ruling Frente de Todos coalition suffered a devastating political defeat, with the center-right Juntos por el Cambio coalition ahead by close to 9% in the Lower House race and around 15% in the Senate. In addition to securing several Peronist stronghold districts, such as Chubut, Chaco, and Santa Cruz, Juntos por el Cambio also secured the province of Buenos Aires, where around 33% of Argentines reside.

Our View

If midterm results echo the trends seen in the PASO primaries (which tends to be the case), the ruling coalition risks losing its Senate majority and its strong position in the Lower House. While this could somewhat improve the business climate in Argentina, FrontierView sees significant risks ahead as a result of the PASO primaries depending on how the Alberto Fernandez administration responds. With two months until the midterm elections, it is likely that the government will double down on interventionist policies, further complicating the business environment. Additionally, a Cabinet shake-up is likely, and if the Fernandez government replaces Finance Minister Martin Guzman, who is a key moderating voice in this administration, we are likely to see even messier economic policymaking, which could further fuel inflation and complicate the country’s ongoing IMF negotiations.

Business Implications

Firms should closely monitor political developments ahead of the November midterm elections. Fernandez has already announced plans for additional pre-electoral spending, which will further erode Argentina’s fiscal position but could create short-term opportunities for firms, particularly in the B2C space. Firms should also engage in scenario planning and ensure that a multi-stage FX hedging strategy is in place until at least Q1 2022.

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