Argentina – A Defeat for Populism

The outcome of legislative elections and the first-round presidential election held in late October signaled the end of the heterodox populism that has characterized the policy approach of the Argentine government over the last 12 years, regardless of who ultimately emerged victorious in the run-off contest held in late November. The main governing FPV fell short of winning a majority in the lower house of Congress, and although its presidential candidate, Daniel Scioli, finished first in the initial round of the presidential contest, his chief rival, Mauricio Macri, the leader of center-right PRO, finished much closer than polls suggested would be the case. With Macri quickly winning the endorsement of Sergio Massa, a former member of the FPV who finished third in the presidential voting, Scioli had no choice but to tack toward the center if he hoped to broaden his base of support.
In the event, Macri won a narrow victory, taking 51.3% of the vote. But that was good enough, and points to a rightward shift in policy that has positive implications for the climate for investment, the prospects for the resolving Argentina’s debt mess, and relations with Mercosur. However, the new president will face obstacles. The PRO-led Cambiemos coalition won just 91 seats in the 257-member Chamber of Deputies, and while he may be able to obtain the support of enough disaffected Peronists to claim a majority, President Christina Fernandez will remain an influential figure, and she has warned that the FPV will not stand idly by as Macri attempts to dismantle the legacy of the Kirchner dynasty.
Macri’s pledge to move quickly to strike a deal with Argentina’s bondholders has had a favorable impact on the markets, but he will need to overcome the opposition of the FPV to any significant concessions to creditors, and his success or failure will provide an early gauge of how much room for maneuver he is likely to enjoy with regard to policy implementation in the first half of his term.
More generally, the fragile state of the economy makes it likely that the new government will approach the task of addressing market distortions in incremental fashion, beginning with a push to adjust the overvalued currency.
Elsewhere on the policy front, Macri has indicated that he will pursue a multi-polar foreign policy, in contrast to the Fernandez administration’s emphasis on building close ties with Venezuela and China. He has also promised to reduce tariffs and export taxes on agricultural products, which he will have the power to do without the consent of the Congress.