Argentina election results open the door for policy change
October 28, 2013
President Kirchner’s party suffered in Sunday’s congressional elections. Analysts see some near-term changes, even if big adjustments await the 2015 presidential polls
President Cristina Kirchner’s FPV party lost ground as
expected in Congressional elections Sunday. In addition to reinforcing analysts’
views that her re-election is unlikely in 2015, it could also bring more immediate
effects for economic policies, observers say.
The president’s party won 33% of the national vote, and was
defeated in the main provinces. The result followed a 27% result in the August primary elections. Barclays expects the post-election period to feature
policies aimed at reducing political tensions, as well as labor and social
“Authorities will likely follow through with the policy
gyrations that started with [the exploration joint venture agreed earlier this year with] Chevron and accelerated after the primary elections,”
the bank says. “Such a policy approach is positive, in that it anchors private
sector expectations, lessening concerns about confiscatory risks and the
long-term economic/political outlook.”
The shift should lower the private sector’s net dollar outflows
and should continue to support reserves and markets, it says. Also, lower
external financing costs could allow international market access for provincial
governments. This year, many provinces have accessed the domestic bond market,
often for dollar-linked debt, departing from a use of the international markets
in previous years. Chubut
did so earlier this month.
Noting “uncertainties about the course of the economic
policies in the coming months,” Itaú says it expects further FX control
tightening to stop the drain in international reserves and an acceleration of
the pace of depreciation of the official exchange rate.
On the negative side, Barclays finds the government is also
unlikely to meaningfully change tariffs before 2015. A sharp depreciation of
the currency is unlikely. Overall, the bank maintains a “constructive outlook”
for Argentina assets.
“The prospects of a presidential regime change in 2015 are a
clear credit positive event, which Argentine assets have clearly been trend
pricing-in,” Bulltick says.
Bulltick sees this weekend’s electoral result as
implying opportunity for Argentina to “start from scratch” to repair its
economy and re-engage the international markets. A new government would likely
have more room to make the tough difficult decisions on public spending, monetary
policy, diffusion of statistics, management of external obligations, and conversation
with external creditors.LF