Thursday, September 8, 2011

Cristina de Kirchner's victory points to macroeconomic uncertainty in Argentina

By Daniel Kerner

Cristina de Kirchner's victory points to macroeconomic uncertainty in Argentina come November...

President Cristina Fernandez de Kirchner scored a clear victory in Argentina's first ever open primary election on August 14, setting the stage for her to sweep the October 23 presidential election. Fernandez de Kirchner's win in the primary came on the back of Argentina's strong economic growth. That growth, however, is based on unorthodox economic policies that are unlikely to change if Fernandez de Kirchner wins reelection, and that implies macroeconomic concerns in the future.

Fernandez de Kirchner is in a very strong political position. Popular support for her is at the highest levels since she came to office in December 2007. Moreover, several indicators suggest voters are content with the status quo and that there is little demand for change. Fernandez de Kirchner's 50.06 percent of the primary votes compares favorably to the 45.6 percent she won in the 2007 presidential elections. The increase is mostly because of robust economic growth and the opposition's weakness.

Fernandez de Kirchner's overwhelming victory bodes very well for her chances in the October elections. Participation was high at more than 77 percent, which means that these results should be taken as indication of how voters are likely to behave in October. In fact, support for her could even grow as her front-runner status attracts additional voters.

In contrast, the opposition is in disarray. There is a substantial distance between Fernandez de Kirchner and other candidates and no other candidate is likely to emerge as serious competitor. Ricardo Alfonsin obtained only 12.7 percent of the votes, a former president, Eduardo Duhalde, got 12.6 percent, and the socialist candidate Hermes Binner received 10.27 percent.

There is some speculation that opposition parties could coalesce behind a single candidate in October. That is unlikely. All three opposition candidates were close and there is little incentive for any of them to step aside. Additionally, any decision to leave the race would mean abandoning that party's candidates for legislative and local elections, and that would be resisted. Barring a major economic or social deterioration in the run up to the October elections, Fernandez de Kirchner is favored to win. In fact, the primary is likely to generate the perception that Fernandez de Kirchner is unbeatable.

With Fernandez de Kirchner on track to win reelection, attention now turns to what might happen during her next term. There is unlikely to be any major change or improvement in economic policy after the election, in fact, quite the opposite. Strong growth and popular support mean that the government perceives little need to adjust policy. Fernandez de Kirchner's likely victory in October (and probably with a comfortable margin) will only reinforce this feeling. In addition, the profile of some of the individuals that seem to be gaining strength within government suggests that Argentina's unorthodox economic policies are likely to continue, which bodes poorly for the country's macroeconomic outlook.

Daniel Kerner is an analyst in Eurasia Group’s Latin America practice.

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