After a humiliating defeat in primary elections on Sunday, many pundits now assume that it is game over for Argentina’s President Mauricio Macri.
The market’s verdict was clear: yet another collapse in the peso, reviving bad memories of last year’s currency crisis and suggesting that investors doubt the reformist leader’s ability to continue his bid to transform Argentina.
Mr Macri received just 32 per cent of the vote while his populist rival Alberto Fernández won an unexpected 47 per cent, leaving the situation looking bleak for the ruling coalition.
What can Mr Macri do next?
Some political analysts and investors have written off the Argentine president as the leader of a lame duck government. That puts Mr Fernández in the odd position of looking like a president-elect without having been formally elected.
Although Mr Macri has pledged to reverse the election result, claiming that he could make it to a second round run-off against Mr Fernández, few outside the government share that optimism.
Gustavo Marangoni, a political analyst, warned that Mr Macri must concentrate on preventing the crisis from deepening.
“The government must focus on guaranteeing governability from now until the end of the year,” he said. “The country needs the president to act like a president, and not like a candidate [aiming for re-election].”
Since democracy returned to Argentina in 1983 two other non-populist Peronist governments have seen their terms cut short by economic crises; Mr Macri’s primary objective must be to avoid that fate.
“That is what we have to avoid now,” said Mr Marangoni. “Macri must finish his mandate without an [economic] collapse.”
Other key stakeholders including the opposition and the IMF, which bailed Argentina out to the tune of $57bn during last year’s currency crisis, also have a responsibility here, he added.
Why were the primary elections so important?
Sunday’s contest was hugely significant as the first accurate measure of nationwide political sentiment — as it turns out, no poll came anywhere close to predicting the result.
This is despite the fact that all parties had already chosen their candidates internally, apparently rendering these elections obsolete.
“The chances of reversing this result don’t exist — it’s impossible,” said Luis Tonelli, a political scientist who supports the government.
The conventional wisdom was that if Mr Fernández was no more than five or six points ahead — a result that many polls predicted — that outcome could be reversed. But a gap of more than 15 points, as turned out to be the case, looks insurmountable.
It looks as though Mr Fernández could meet one or other of the criteria for an outright victory when the first round of voting is held in October: he would need to get more than 45 per cent of the vote, or more than 40 per cent and a lead of 10 points over the runner-up.
Even the combined support of all the other centrist and rightwing candidates — which amounts to around 13 per cent — would not be enough for Mr Macri to bridge the gap.
But Mr Tonelli argued that those candidates could, like Mr Fernández, perform better in the first round.
“You can’t bury your head in the sand,” he said.
Why are markets panicking?
In one word, populism. Mr Fernández has been at pains to distance himself from his running mate, former president Cristina Fernández de Kirchner (no relation). But not everyone is convinced that, as president, he would be entirely independent from the fiery populist.
To no small degree, he would owe his victory to the leftwing leader under whose watch Argentina became a pariah among international investors and whose economic policies were defined by interventionism.
“Cristina Fernández de Kirchner is as bad as it gets,” said Daniel Melhem, an investment adviser in Buenos Aires.
Mr Fernández himself has made comments that disturbed investors in recent days — for example, he said that he would cease to pay interest on central bank debt, instead channelling those funds to pensioners.
But on Monday one of his closest economic advisers Matias Kulfas sent reassuring signals to markets, telling a local journalist that Mr Fernández’s coalition has “absolute willingness to pay” Argentina’s external debt, and that it opposed the exchange controls that Mr Macri abolished shortly after coming to power in December 2015.
Is the IMF bailout programme in peril?
Mr Kulfas said on Monday that Mr Fernández’s team spoke to IMF officials when they visited Argentina a few weeks ago.
“We ratified our will for dialogue, but from a position in which we will try to modify the agreement because we think that on the current path we are not achieving the objectives” of reactivating economic growth and reducing inflation, he said.
Whatever happens, the renewed volatility in the peso is worrying. With 80 per cent of Argentina’s debt denominated in foreign currency, a continued depreciation would put further pressure on the country’s debt dynamics and raise the likelihood of yet another Argentine sovereign default.
Analysts at Capital Economics in London forecast that Argentina’s debt-to-GDP ratio will hit 100 per cent by the end of 2019, up from 86 per cent late last year.