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Analysis
Peronist exit beckons

Peronist exit beckons

Argentina set for change as ‘politics of fear’ subsides

by David Smith in Buenos Aires

Wed 18 Nov 2015

Only perhaps in Argentina, a country with such a history of debt and default, would the International Monetary Fund emerge as a player in the final days of an election campaign.

But the IMF has become a central part of the narrative as this country heads into a decisive run-off for the presidency this weekend, with the polls suggesting that the opposition is favoured to win, delivering the ruling Peronist movement a watershed defeat.

Buenos Aires Governor Daniel Scioli, the Peronist candidate, has been hammering home a bleak message. If his opponent, Buenos Aires Mayor Mauricio Macri, wins Sunday’s vote, Scioli says Argentina’s future will be in the hands of the ruling powers in Washington, or the courts in New York, or the ‘neoliberal economic establishment’ of the North.

‘Macri represents upheaval, a return to begging at the IMF, and obedience to the judge in New York,’ declared Sciol, as he toured the northern provinces in the final stages of the campaign. He was referring to the US court that has been ordering Argentina to pay ‘hold-out’ creditors who seek full repayment of debts from Argentina’s historic default in 2001.

‘Macri promises changes,’ insisted Scioli. ‘Change that will mean instant devaluation, and less and less value for the money in your pocket – just as the IMF prescribes.’

Fear has been a major theme of this campaign, ever since Scioli failed to close out the election as expected in the first round of voting in October, when more than 60% voted against the ruling party.

Working with the propaganda machine of Cristina Fernandez de Kirchner, the outgoing president, Scioli has worked overtime to portray Macri as a heartless technocrat who will savage subsidies that reach nearly 50% of the population. The charge is that he will raise everything from electricity bills to bus fares, both sectors of government largesse that has bloated the fiscal deficit to 6% of GDP.

In the circumstances, Macri has been careful not to show his hand on the tough economic choices to come. Yes, he has said he will devalue. Yes, he has hinted at the need to cut the deficit. His advisers make no secret of the imperative to cut a deal with hold-out creditors, and so return to international capital markets.

‘It’s time to tell the truth, and to face the truth,’ said Macri this week, asking Scioli in a key moment during their only election debate how anyone could suggest that Argentina has less poverty than Germany, a claim made by the outgoing government.

‘Reality is that the economy is in freefall,’ confides one of Marci’s lead advisers. ‘Currency controls and trade restrictions are choking our productivity, we have dwindling foreign reserves, and inflation running at 25%. There are no good options here, just brutal choices, if we are to return to growth and re-open Argentina to the world.’

That is music to the ears of some powerful fund managers in North America, who have been betting on a Macri victory over the past month since the first round showed a country divided. In a difficult year for hedge funds, Argentina has been a bright spot of late, some betting on shares, bonds and even the peso, seeing returns of 30% in the past few weeks, in line with the rise in Argentina’s Merval index.

‘Once again, Argentina’s crisis creates opportunity,’ to quote one committed foreign investor in Buenos Aires this week. ‘Whoever wins, the status quo is not sustainable, so change is coming.’

As the campaign closed, the polls showed the race tightening. But Macri’s opposition alliance, Cambiemos (Let’s Change), has a single-digit lead over the Peronists, and appears to take a majority of those who voted for third-party candidates in the first round.

‘The politics of fear isn’t working,’ according to one of the country’s leading pollsters. ‘The situation, the crisis every day of rising prices, rising unemployment, and rising debt, be it personal, be it national, the situation is winning this election, not a candidate, or an agenda.’

David Smith, OMFIF Advisory Board Member, represented the UN Secretary-General in Argentina 2010-14.

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