Markets Loathe Uncertainty, But Loathe Kirchnerism Even More

Sheer Ecstasy after Argentina Election Results

By Bianca Fernet, Argentina:

Writing about Argentina’s economy on a regular basis has of late felt like an exercise in redundancy and hopelessness, muddled with depression. Today, that changed abruptly. Markets and moods are up on the shocking outcome of yesterday’s general election.

Opposition presidential candidate Mauricio Macri won a sufficient percentage to force Kirchnerism’s candidate Daniel Scioli to a second round. Adding insult to injury, the new governor of the Buenos Aires province shall be Maria Eugenia Vidal, rather than Cristina Fernandez de Kirchner’s former cabinet chief Aníbal Fernández. These results were unexpected – and show the world that Kirchnerism’s stranglehold on the economy can be broken.

In the United States, Argentine companies with stocks (ADRs) that trade in US markets jumped up to 22 percent, with the highest gains made by banks and financial institutions. Internationally traded bonds went up too, gaining an average of 2.9 percent across the board. Defaulted bonds hit their highest values since 2007.

Gains in the local market in Buenos Aires were equally pronounced. The Merval Index went up to 6 percent, with financial entities again leading gains and increasing in the double digits.

The parallel or “blue” dollar went down to 15.75 ARS/USD, from record highs of 16.30 ARS/USD only last week before the election.

These results are a huge deal, and the fact that they came as a surprise to both the market and political analysts demonstrate the potential inherent not only in Argentina’s economy, but from healthier Argentine institutions.

Argentina’s market gains run deeper than the following thought process:

  • Macri is “pro-business”
  • Reaching the second round (unexpected) increases the chances of Macri being president
  • Macri was behind Scioli by a very small margin of only 2.5 percent (complete surprise)
  • Ergo, the chances of having a “pro-business” president are now higher so I should buy some bonds

Argentina’s electoral institutions work, and Argentines have used them to send a clear message that they are tired of the thug-like behavior that characterizes Kirchnerite politics.

Yesterday, Argentines demonstrated their ability to recognize the importance of holding politicians and state servants responsible for their behavior and actions, and their preference to elect candidates willing to take painful steps to dismantle some of the populist economic lies promulgated under President Cristina Fernandez de Kirchner.

Mauricio Macri has committed to negotiating a settlement with the so-called “vulture funds,” to ending the foreign currency controls, to normalizing import/export policy, and to addressing inflation. Kirchnerite candidate Daniel Scioli has promised to slowly maybe change some of these things over time with hope, and faith, and faith, and hope, and threatened that Macri’s policies will bring about poverty and despair like that experienced after the crisis of 2001. In the upcoming runoff, Argentines will be given the opportunity to make a clear choice between which version they prefer.

Peronism lost in the Buenos Aires province. If you take a look at my article castigating Peronism’s more populist personality traits, you’ll understand the psychological importance of the largest, richest, most populous province unequivocally voting against Kirchnerite Anibal Fernandez and what he stands for. Fernandez has placed the blame for his loss on accusations from pseudo-journalist/entertainer Jorge Lanata that Fernandez is involved in drug trafficking. The more likely reason is that Buenos Aires residents don’t want to be governed by a man whose tactics resemble those of a gangster rather than a statesman.

Regardless of who wins on 22 November, Argentina has sent a clear signal that they are tired of being bullied by Kirchnerism. Before Sunday’s election, markets and analysts alike agreed Daniel Scioli would be Argentina’s next president. Now there is a very real chance that he will not.

And while markets loathe uncertainty, it appears they loathe Kirchnerism even more. By Bianca Fernet.

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  5 comments for “Markets Loathe Uncertainty, But Loathe Kirchnerism Even More

  1. morgondag says:

    Macri, as mayor of Buenos Aires city, has used illegal wiretapping among other things and one of his top candidates, Niembro, had to drop from the lists because of very shady contracts with his administration. The third big candidate, Massa, portrais himself as tough on crime but narcos seem to operate with remarcable impunity in his home municipality of Tigre. Also in Rosario another large opposition controlled city there has been big narco scandals with complicity of authorities.

    There is without doubt corruption and gangsterism withing Kirchnerismo but nothing indicating it is on a bigger scale than previous governments or the main opposition parties. Rather these arguments are taken up as a front when the real reason they hate Kircherismo is because of its state interventionist policies in the economy.

    It is strange on a blog like this to see a post essentially hailing privatization and financial deregulation that Macri stands for. The term vulture funds is entirely appropriate and Argentina has so far fought them off quite succesfully so really there is no reason to change strategy there.

    • Wolf Richter says:

      Morgondag, just to let you know concerning your statement, “It is strange on a blog like this to see a post essentially hailing privatization…”: from day one, WOLF STREET has been criticizing and ridiculing the Kirchner government for all the crazy things it is doing to destroy the Argentine economy.

  2. Julian the Apostate says:

    Thanks for the update Bianca. That the rank and file voters are fed up with gangsterism is plain in many countries around the world. My concern is that it will be too little too late. My son is more optimistic than I am, telling me in a long way around the barn way that my thinking is too 20th century and I should think outside the box. To this extent he is correct-the place we find ourselves now is beyond ANY past experience. While he is still young and nimble in his chosen field and is doing well even he sees all the moochers lining up to drain him at every opportunity and the powers that be have hammered him as well for daring to have opinions and not being afraid to speak his mind. If he could build his fortune on a predictable future I would be more sanguine, old curmudgeon that I am, from my point of view he’s building on weak and shifting sand.
    The strike of a legislative pen could wipe out his new business overnight. I guess we’ll see.

  3. It doesn’t matter who is ‘in charge’ or what their policies are. Argentina has hit resource limits and there is nothing the country or its bosses can do about it.

    Argentina is little different from Greece, it must borrow in a foreign currency — dollars — to buy the fuel it cannot mine from its own reservoirs. It must also borrow overseas to build industrial infrastructure. It must borrow to provide collateral for its (worthless) currency and borrow more to repay prior rounds of loans. The new government indeed promises to repay but it cannot borrow any more than the prior governments. As it is the newcomers cannot render Argentina solvent by decree.

    The bulk of the world has been trying to do so for the past ten years and the results speak for themselves.

  4. morgondag says:

    Well, then you are making a misstake. To start with, what about all the years of 6-8% growth from 2003 and up to the 2009 recession, which also never hit Argentina very hard. Also Brazil have more orthodox economic policies than Argentina (no currency controls, etc), but their economy is actually a bit worse.

    There is absolutely no basis in fact to believe that Macri would be less corrupt than the Kirchners, he just has been confined by having less power so far.

    The peso is seriously overvalued by the official rate, but it is by no means worthless. Argentina produces many things the rest of the world wants, principally soy (3:d biggest soy producer, 2:nd biggest exporter) and other grains for the world market and various light industrial products that are not very competetive globaly usually but ubiquitous in neighbour countries like Bolivia and Paraguay. Thus, Argentine peso has value, as one can also see by the fact China is willing to swap them for yuan.
    Argentine public debt is lower than Germany relative to GNP (around 50%) so there is absolutely no way the country will go bankrupt. Comparing it with Greece is monumentaly ignorant. In fact Argentina payed off all their IMF loans ahead of time like 10 years ago and kicked them out specifically so they would not have to take orders anymore.
    They will devalue (whether Scioli or Macri makes the decision), prices will go up some more, and thats it, basically.

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