On 22 November, Mauricio Macri of the centre-right opposition alliance ‘Let’s Change’ (Cambiemos) won the second round of the Argentine presidential election. The popular mayor of Buenos Aires gained 51.4% of the vote, almost 3% more than government candidate Daniel Scioli. Notably, this implies that after more than twelve years in power – first under Néstor Kirchner and then under Kirchner’s wife, Cristina Fernández – Argentina has opted to break with the left-of-centre Front for Victory (Frente para la Victoria, FpV).

Impact on country risk

The main reason for the poor electoral performance of the FpV is the dire state of the Argentine economy. According to the Institute of International Finance, GDP contracted by 2.1% in 2014 and will continue to shrink in 2015 and 2016. Meanwhile, inflation is out of control, largely because of large government deficits, and the overvalued exchange rate is rendering exports uncompetitive. Partly as a result, the current account deficit has been growing and putting pressure on international reserves. A liquidity crisis has so far been avoided thanks to financial support from China and hefty import and capital controls, but the latter have also further eroded investor confidence. As for president-elect Macri, it remains to be seen if he will be able to effectively address these macroeconomic imbalances. Crucially, his coalition does not have a legislative majority. Hence, Macri faces the daunting task of securing opposition support for some unpopular decisions that are deemed necessary. For one thing, a significant currency devaluation will likely be needed to improve international competitiveness and sustainably underpin international reserves, yet this will also further stoke inflation. Moreover, regaining access to international financial markets will require negotiations with the holdout creditors from the 2005 and 2010 debt restructuring that are referred to in Argentina as ‘vulture funds’, evidently a very contentious issue. Analyst: Sebastian Vanderlinden, s.vanderlinden@credendogroup.com