The victor of this Sunday’s election in Argentina will inherit one of the world’s most unenviable economic messes. Inflation is running at 55 per cent a year, the economy is in a deep recession, poverty is rising, billions of dollars have fled the country, the peso has plunged and Argentina is unable to pay its $100bn foreign debt. It sounds an all too familiar story in a country that aspired to European levels of prosperity in the early 20th century but has consistently disappointed ever since.
This time was supposed to be different, though: Mauricio Macri, scion of one of the country’s wealthiest families, came to power four years ago promising that his market-friendly policies and business savvy would finally put the Argentine economy right.
But after a series of blunders that led to another IMF bailout last year, Mr Macri has achieved what few thought possible, according to a senior executive at an international bank in Buenos Aires: he will hand over Argentina’s economy in a worse state than it was when he inherited it in 2015 from Cristina Fernández de Kirchner, a leftwinger criticised by international investors for her repeated bouts of state intervention.
Somewhat improbably against the dire economic backdrop, Mr Macri is running for a second term. But few even in his own team expect him to win. A national primary on August 11, widely regarded as a good barometer of sentiment, was won handsomely by the main opposition candidate, the centre-left Peronist Alberto Fernández, whose running mate is Ms Fernández de Kirchner.
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Mr Macri has since attempted to relaunch his faltering campaign under the slogan “#Sí se puede” (‘Yes we can’). But recent opinion polls — not always to be trusted — suggest that Mr Fernández’s lead may have widened. A final batch published before the election by the newspaper Clarín predicts that the Peronists will win by a crushing margin of between 16 and 22 percentage points, more than enough to avoid a runoff.
Mr Macri has found himself under attack from both sides: liberals criticise him for not acting faster at the start of his term to cut Argentina’s bloated budget and for relying excessively on interest rates to bring down inflation in a country addicted to regular price rises. Leftwingers attack him as a man who governed for the rich.
“The Argentine economy is rather like a sick man bleeding heavily on the street,” says Luis Tonelli, chair of the department of political science at Buenos Aires university. “There is no time to analyse his condition. You need to call an ambulance and start pumping blood into him before he collapses completely.”
Market confidence collapsed after the August primary election result, principally because of investor fears that a Peronist return to power would mean a repeat of the interventionist, big-state policies first favoured by the populist general Juan Perón in the 1950s.
Heavy falls in the peso and the stock market forced Mr Macri to reimpose the exchange controls he had scrapped amid much fanfare at the start of his administration. But $12bn had already fled the country since the primary and economists say Argentina remains vulnerable to a market meltdown unless the election victor acts quickly.
“The agenda is the same whoever wins,” says one chief executive of a major Argentine company. “Exchange controls will have to stay in place, debt needs to be rescheduled and the market remains closed for now to Argentina and its companies . . . then there is high public spending, the budget deficit and runaway inflation: any economic programme has to lower inflation.”
The most urgent need is to renegotiate Argentina’s debt, which shot up under Mr Macri’s administration, largely as a result of the record $57bn IMF bailout programme which he sought amid a currency crisis last year.
“There is very little that a new government can do without a deal with the IMF and the rescheduling of [bondholder] debt,” says Eduardo Levy Yeyati, dean of the school of government at Torcuato Di Tella university in Buenos Aires. “Without this double deal, it is very hard for Argentina to grow.”
The problem, Mr Levy says, is that Argentina needs a debt deal quickly to avoid running out of money, and private sector creditors are unlikely to agree to one unless they are offered generous terms. The fund, however, is smarting from the travails of its biggest-ever loan and is likely to press for bondholders to take sizeable losses to ensure that it is not accused of lending public money to rescue private investors.
“It’s a Catch-22 with the timing,” says Mr Levy.
The IMF has not made further disbursements on its loan to Argentina since August’s market crash. Its new head Kristalina Georgieva said last week that the fund remained “fully committed to work with Argentina” and was “very interested to see what policy framework would be put in place”.
But with Mr Fernández the likely election victor, the fund is preparing for uncomfortable talks. The Peronist candidate has been sharply critical of the IMF during his campaign, alleging that it should share responsibility for the country’s plight with Mr Macri, and accusing it of facilitating capital flight with its record-breaking loan. “But nothing [Mr Fernández] has said so far indicates that it will not be possible to work out an agreement,” says an international financier close to the discussions.
A wider concern among the business community in Buenos Aires is over the policies Mr Fernández may follow to revive the sickly economy.
As cabinet chief under the 200307 Peronist presidency of Néstor Kirchner, Mr Fernández was known as a pragmatic moderate. He continued in the post when Mr Kirchner’s wife Cristina Fernández de Kirchner became president, only to resign over her decision to impose heavy export taxes on the country’s farmers.
Mr Fernández has since largely stayed out of the limelight, juggling his time between working as a political consultant, a lawyer and a university lecturer, until Ms Fernández announced in May that she would run as vice-president on a ticket with him (the two are not related). The move was widely seen as a masterstroke, allowing Ms Fernández a partial return to power despite high voter rejection rates after presiding over a period of poor economic management and rampant public corruption.
