During this month’s legislative elections, President Macri was able to strengthen his position. Cambiemos, Macri’s coalition, won about 40% of the vote while the runner up, the Perronist opposition party Unidad Ciudadana, gained about 21% of the vote. The elections were a huge blow to Perronists as they lost some important strongholds and the party was left fractured. Despite the electoral win, Macri still lacks a majority in parliament as only half of the seats in the lower house and one third of the seats in the Senate were at play. Nevertheless, the larger support base is likely to facilitate the progress of Macri’s policy agenda.  

Impact on country risk

The electoral win could be good news for FDI in the country. Though portfolio and bond investors have demonstrated a robust appetite in Argentina, fixed-asset investors have remained on the sidelines. Many have waited for the midterms for signs of continuity for Macri’s macroeconomic stabilisation programme. Therefore, the electoral win might convince investors. The election outcome is also likely to accelerate President Macri’s reform drive. One week after the elections, Macri had already unveiled sweeping proposals to cut taxes in the first of an expected series of pro-market reforms. Despite an improvement in the economic fundamentals, Macri still has some work cut out. The relative high inflation is tenacious. The stubbornly elevated fiscal deficit (estimated at  6.6% of GDP in 2017) needs to be tackled, as it is forcing the government to rely on international credit. The current-account deficit is growing (expected at  3.6% of GDP in 2017), swelling the external debt (forecasted at a moderate 37% of GDP but a high level vis-a-vis exports of almost 300%).

Analyst: Jolyn Debuysscher, j.debuysscher@credendo.com