Argentina election results open the door for policy change

Argentina election results open the door for policy change

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 unrest.

“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