IHS Markit perspective
Outlook and implications
- Cambiemos ("Let's Change") won in the country's five main provinces, which represent more than 60% of the electorate; further gains nationwide made it the largest political force in the country.
- Cambiemos gains in Congress put the government in the strongest position yet to secure approval of tax and labour reforms despite falling short of securing a majority.
- The weakening of the Peronist opposition, particularly of former president Cristina Fernández de Kirchner, significantly enhances President Mauricio Macri or his chosen candidate's chances of re-election in 2019.
Government instability; Policy direction
Sectors or assets
Argentina's President Mauricio Macri (2-R) and his wife the first lady Juliana Awada (2-L) wave next to their daughter Antonia, Argentina's Vice-President Gabriela Michetti (R) and Buenos Aires Mayor Horacio Rodriguez Larreta (2-L) during the celebrations after the legislative elections in Argentina, in Buenos Aires on 23 October 2017.
Claudio Perin/AFP/Getty Images
Ruling coalition Cambiemos ("Let's Change") came out as the clear winner of the crucial 22 October mid-term legislative elections that chose one-third of the 72-seat Senate and half of the 257-seat lower chamber. Crucially, in the province of Buenos Aires, the country's main electoral college, Esteban Bullrich, Senate candidate for the ruling Cambiemos coalition in Buenos Aires province, beat former president Cristina Fernández de Kirchner from Citizen's Unity (Unidad Ciudadana: UC) party by 41% to 37%. This was a marked reversal for Fernández, who had won by a small margin in the August primaries. Buenos Aires province was the main test for Cambiemos, but it also performed well nationally. With the exception of San Luis province, where the opposition reversed August's primary results, Cambiemos won convincingly in provinces where it was favourite. Unexpectedly, it also won in other provinces traditionally considered as Peronist strongholds such as La Rioja, Salta, and Santa Cruz (Fernández's home province). In total, Cambiemos won in 13 provinces, while Peronism only won in 9 provinces, 2 of those by a single percentage point.
Congressionally, in the Lower House, Cambiemos gained 21 additional seats totalling 107, and Fernandez's UC fell 8 seats to 69; other Peronist factions also lost ground, losing at least 24 seats. This leaves Cambiemos as the larger force in the Lower House, but short of the 129 seats needed to secure quorum. Meanwhile, in the Senate, Cambiemos's seats increased to 24; the UC has 12; other Peronist factions have 26 senators in total.
Discrediting of Kirchnerism and revival of the economy
The mismanagement of Kirchnerism, which after three terms in office left an economy in recession and a country in debt default, appear to still be fresh in the memory of Argentina's electorate. To this adds a string of corruption investigations against top officials of the previous government, including Fernández herself. In the view of many voters, Fernández's run for a Senate seat has as its main goal to secure her immunity from prosecution. These were leading factors in the level of voters' rejection experienced by Kirchnerism. But Cambiemos also benefited from clear signs of economic revival and indications that GDP growth will accelerate in 2018. IHS Markit forecasts 2.4% GDP growth in 2017 and 2.8% in 2018, after a 2.2% contraction in 2016. Although inflation remains higher than the Central Bank of Argentina's target of 12–17% for 2017, the trend is a declining one; it averaged 24% so far this year, but it is lower than the 40% recorded in 2016. Other indicators also indicate a sustainable economic recovery, including a surge in private credit, an increase in tax revenue, and job creation.
Divided opposition to benefit government's agenda in Congress
The deep divisions within Peronist opposition have been highly beneficial for Macri – this is illustrated by the fact that Peronism presented three separate candidate lists to the Senate in Buenos Aires province. Despite Fernández's setback in the election, she has made clear her UC party remains the leading force in Peronism. This will enrage the other Peronist factions, whose leaders see Fernandez as major obstacle for the regrouping of Peronism. This has left Cambiemos well placed to seek accommodation with the moderate sectors of Peronism bent on undermining Fernández leadership. Sergio Massa, from non-Kirchnerist Peronist 1País coalition, was severely weakened; he lost about 40% of seats in Congress. He was a powerbroker during the first half of Macri's term, helping the government to pass policy, albeit watered-down, such as a public-private partnership law. In addition to Massa, the government is now likely to look for other allies, mainly moderate Peronist governors, who can influence legislators in their constituencies to support government policy. The government would however have to make concessions for them while discussing changes to the revenue-sharing law with provinces (ley de co-participación).
Outlook and implications
The election consolidates Cambiemos as a nationwide political force, while highlighting the weakening of Peronism. This increases the chances of Macri or his chosen candidate being re-elected in 2019, as long as the economic revival being experienced by Argentina remains on a sustainable path, with job creation and the evolution of consumer price inflation key indicators in that respect. A larger support base in Congress is likely to facilitate the progress of Macri's policy agenda focused on passing labour and tax reforms to offer an improved environment to the corporate sector. The government will also focus on fiscal deficit reduction, by speeding up austerity, particularly the removal of subsidies granted to consumers of gas, water, and electricity, which are a major contributor to growing public expenditure. Those areas are likely to be highly contentious and will test Macri's increased power in Congress. Other economic measures, such as reducing soya export tax, are also likely. Overall, this bodes well for an improved operational environment and increased foreign investment interest in Vaca Muerta (shale gas), and in the long list of infrastructure projects the government has scheduled since its election in 2015.