Investors are betting that Argentina will come back from the financial wilderness after October’s elections as the era of the Kirchners draws to a close.
Cristina Fernández de Kirchner, who succeeded her husband Nestor in 2007, cannot stand for re-election, and financial investors have been positioning themselves ahead of the polls. “There has been a big rally,” said John Welch, emerging markets macrostrategist at CIBC.
”We have seen a lot of positioning, a lot of buying. We are going to have better policies. But candidates are not exactly going to reveal what they will be doing during the electoral campaign, because they do not want to become a target,” he said.
One of the main conditions for getting things normalised will be to find an agreement with the bond holdout creditors, who have so far rejected any agreement with the Argentine authorities since the 2001 debt default.
If a pro-market candidate is elected and swift reforms are implemented, Argentina’s economy may bounce back from recession and achieve economic growth as high as 3% in 2016, according to the Institute of International Finance (IIF), which has currently penciled in growth of just 1.5%.
“The more forceful the policy response, the greater the probability to have growth higher than 1.5%,” said Ramon Aracena, the IIF’s Latin America chief economist. “Argentina is ready to take off, so the new government needs to be very aggressive to send the right signals to the market. You need to embrace the market and then the economy is going to take off,” he said.
The market consensus is that whoever is elected will be better than the current confrontational administration, which has imposed a series of controls on the economy and failed to rein in inflation while plunging the country into a deep recession.
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However, not everybody is convinced. “It is a very valid point, but it is not clear who is coming after and how the key topics will be addressed, and this is not going to be easy — inflation, the exchange rate, and more importantly the issue of the holdouts,” said Roberto Sifon-Arivelo, Standard & Poor’s managing director for Latin America.
“It is even more of a big deal now that the country desperately needs access to international borrowing to recoup the flow of foreign exchange over time,” he said, adding that a recent bond rally was mainly “speculative”.
“A lot of people look at the bonds and think ‘well she leaves, bonds are probably going to go up a little bit’. But that does not mean that the conditions of the country have actually improved. The way out of this hole is not going to be pretty and it is not going to be fast,” said Sifon-Arivelo.
“The end of the Kirchner era means there is a chance to put the country back on its feet. This may be true, but there are still nine more months to go (before the actual change of government). In the current global economic environment, it is a long period of time,” said Mauro Leos, Moody’s senior credit officer for Latin America.