The strong performance of president Mauricio Macri’s party in primary elections in Argentina could encourage foreign investors to return to the country.
The primary elections – which took place on August 13 – give some indication of the likely outcome of the all-important Congressional elections on October 22, in which a third of the Senate and half of the Chamber of Deputies will be renewed.
If the primary results were repeated in October, candidates representing Mr Macri’s ruling coalition would win at least 11 of 24 seats up for grabs in the Senate. In the Chamber of Deputies, where seats are allocated by proportional representation, the primary results suggest that the ruling coalition could win around 35% of the vote.
“The results are good news for Mr Macri,” says Siobhan Morden, head of Latin America fixed income strategy at Nomura Securities. “They are important for investors’ perceptions. They indicate that maybe he is capable of winning a second presidential term. This could start to encourage new investment in the country.”
According to Capital Economics, a London-based economic consultancy, the Argentine economy is expected to expand by 2% this year and 3% next. Inflation is running at around 22% and the key Lebac interest rate is at 26.25%.
Edward Glossop, the firm’s Latin America economist, says: “Since Macri took office in December 2015, foreign direct investment has been slow to pick up. However, portfolio inflows have been very strong, mostly into local currency bond debt instruments.”
Last year, FDI inflows amounted to only $5.7bn, down from $11.8bn in 2015 (mostly due to to an economic contraction of -2.3% last year).
Recently, Argentina’s politics have become highly polarised. Former president Cristina Fernandez de Kirchner is being pursued by prosecutors over alleged money laundering and financial mismanagement charges. However, she would like to be elected a senator in October (which would give her partial immunity from prosecution).
Meanwhile, Mr Macri has followed an economic course that is a lot more markets-friendly since becoming president. Yet he has been finding it near impossible to bring down the country’s fiscal deficit – around 7% of gross domestic product – mostly because of a lack of co-operation from the country’s powerful provincial governments.
Most foreign investors have been reluctant to commit to Argentina while it runs such a high deficit that feeds inflation. However, if Mr Macri’s party fares well in the October elections, this could signal a forthcoming period of economic stability and encourage investment.