Why Investors Are Beginning to Cry for Argentina
WHY YOU SHOULD CARE
Cristina Fernández de Kirchner is leading incumbent Mauricio Macri in polls, and investors are worried.
By Benedict Mander, Colby Smith and John Paul Rathbone
When investors dumped Argentine bonds en masse just as copies of Cristina Fernández de Kirchner’s autobiography, Sincerely, began to fly off the shelves last week, it gave new meaning to the term “best-seller.”
The asset sell-off took place as all emerging markets were suffering from the strengthening U.S. dollar. But the enthusiastic reception for the populist former president’s memoirs — hard on the heels of polling showing her popularity rising — gave investors one more reason to fret about her possible return to power at presidential elections in October.
“People woke up to the fact that Cristina could run,” says Alejo Czerwonko, emerging markets strategist at UBS Global Wealth Management.
Until recently, most investors believed the reelection of Mauricio Macri, Argentina’s market-friendly president, was assured. But that changed after last year’s currency crisis wrought havoc on the economy and forced Macri to ask for a $56.3 billion bailout from the International Monetary Fund (IMF).
Although most pollsters note that the October election is too far off to make reliable predictions, the mere possibility that Fernández could win is focusing investors’ minds on what that could mean for Argentina’s IMF-backed austerity program and the country’s sovereign debt.
If someone asked me to define Mauricio Macri in just one word, the only one that occurs to me is: chaos.
Cristina Fernández de Kirchner, Sincerely
“If you think about Cristina’s record, most reasonable people would say there is no chance she could ever win another election,” says one international investor who manages a large emerging market debt fund. “But this being Argentina, that is not the case.”
Fernández has not yet declared her intention to run. But her book contains possible clues.
“If someone asked me to define Mauricio Macri in just one word, the only one that occurs to me is: chaos,” she writes. “Mauricio Macri is chaos, and that is why I firmly believe that it is necessary to restore order to Argentina.” In the final paragraph, she writes: “The deterioration caused by the policies of Mauricio Macri and [his coalition] Cambiemos has been too great, vertiginous and deep to think that just a few can fix this,” adding: “We cannot go on like this.”
Some of the book seeks to explain why the multiple charges Fernández faces — including bribery, embezzlement and money laundering — are unfair and amount to political persecution. If elected president, Fernández, who is a senator, would maintain legal immunity and could not be imprisoned.
Should she announce a run before the deadline of June 22, polls suggest she stands a good chance of victory. In an Isonomia Consultancy survey last week, 45 percent of respondents said they would vote for Fernández in a runoff against Macri. Only 36 percent said they would back the president, and almost 20 percent were undecided.
The problem for Macri is that on nearly every economic metric, including inflation and growth, the situation is worse than before he took office. Inflation is running at almost 55 percent, more than double the 27 percent rate in 2015. “For the average Argentine, things have not gotten better in the last few years, and that is why Cristina still has a chance,” the international investor says.
Investor concerns over a possible Fernández government center on her interventionist economic policies after she took power in 2007.
These included nationalizations, accusations of bullying private sector companies — her commerce secretary, Guillermo Moreno, once took boxing gloves to a meeting of shareholders of a key newsprint company in which the state had a stake, to show who was boss — and a bitter dispute with “holdout” bondholders who refused to accept a debt restructuring. The economy was on the brink of a balance of payments crisis when Fernández left office in 2015.
But if Fernández did win, economists note, she would have less room for maneuvering than during her previous term, when a global commodity boom sent the price of soybeans, Argentina’s top export, to a high.
She may already be preparing to contend with Argentina’s economic woes. Axel Kicillof, her radical leftist former economy minister, is widely understood to have met IMF officials secretly recently and assured them that a Fernández government would continue with a program the former president described as “tragic and incredible” in her book.
But some analysts say that with polling inconclusive and the election still some way off, much could change — including an economic recovery that would favor Macri — and that it is too early to suggest Argentina will return to populism.
Graham Stock, head of emerging market sovereign research at BlueBay Asset Management, believes this is unlikely — although Macri himself has recently turned to interventionist policies, such as the price controls imposed this month aimed at curbing runaway inflation.
“There’s an overblown fear that Cristina will win. It is easy for poll responders to say they are voting for Cristina because she doesn’t have any policies, and it is an easy expression of protest against the Macri government,” Stock says. “But when they are standing in the electoral booths in October, the choice may feel rather different.”
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