Protectionist Wave Lands in Argentina

Argentina’s primary results are in and the pro-business incumbent got trounced.

Michelle Klieger
Aug 9, 2019 · 4 min read
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Photo by Willian Justen de Vasconcellos on Unsplash

The rise of protectionist leaders continued this week, highlighting that Brexit and the election of Trump in the United States were not standalone events. On August 11, 2019, conservative Argentine President Mauricio Macri suffered a resounding defeat in primary elections on Sunday.

Macri, the incumbent, was pro-business, pro-free markets, and willing to work with the International Monetary Fund. The victor was a left-wing rival, Alberto Fernández, whose vice-presidential running mate is a former president of Argentina. The coalition backing Fernández won 48% of the votes to Macri’s 32%. The fact that Fernández received more than 45%.

Primaries in Argentina are compulsory, and the primary winner is the favorite for the general election in October of this year. Political consultancy group Eurasia now predicts that Macri has less than a 10% chance of winning the election in October. If Fernandez won 48% of the vote in October, he would win the presidency without a runoff.

Argentine economy

The Argentine economy is in recession, it contracted 5.8% in the first quarter of 2019, after having fallen 2.5% in 2018. Inflation peaked at 57% in June and is expected to end the year at around 40%. In the last year, three million new people have fallen into poverty. All of these economic metrics have driven Macri’s approval rating down. In 2015, he won the election with 51% of the vote.

Macri claims that he needs more time to right the weak economy that he inherited. The economy expanded slightly in May, because of a strong soybean crop. However, not enough to endear himself with voters. During Macri’s time in office, he has cut taxes, invested in infrastructure, and opened Argentina up to more trade. In general, there is a concern that Macri’s policies will be undone, ranging from new export taxes on soybeans to breakdowns in the EU-MERCOSUR discussions.

A bit of history

Marci took office in 2015, ending a decade of left-wing control by Néstor Kirchner(2003–2007) and his wife Cristina Fernández de Kirchner (2007–2015) (& current VP candidate). These leaders favored capital controls and high levels of government spending. Cristina Kirchner also nationalized businesses, defaulted on debt, and her administration faced many corruption scandals.

Both Kirchners used high commodity prices to establish economic growth and prosperity in Argentina after an economic crash in 2001. During this time, the government invested a lot in social programs for the poor. In 2015, inflation and poverty were on the rise, and many feared a significant economic crisis was imminent. The international community didn’t trust government inflation data, and the government stopped reporting poverty data. Kirchner also nationalized businesses, implemented price control.

Marci believed that capital controls were creating a bubble. Fernandez’s policies kept the peso artificially high against the U.S. dollar, creating a black market. To keep prices down for citizens, the government provided electric and water subsidies. Initially, Marci instituted policies gradual policies aimed at improving the economic environment in Argentina. The goal was to re-establish trust with the global financial community and protect Argentina from massive price swings. These policies appeared to be working until 2018 when Marci shocked the world by asking the International Monetary Fund for a $57 billion loan.

The international community still does not trust the government, which faces interest rates of over 60%. Macri also took aggressive measures to stabilize the economy, including harsh austerity measures. The primary results indicate that voters have rejected the austerity measures, even though inflation fell dramatically from its high of 57% just a few months ago.

Business reaction to the news

The Merval, the primary Argentine stock market, lost 37% of its value following the announcement of Macri’s defeat. The fall was the second-biggest decline of any stock market in the last 70 years. The peso, lost 30% of its value against the U.S. dollar, before recovering and closing the day with an 18% decline. Plus some shares of Argentine companies trading on U.S. stock exchanges lost about 60% of their value on Monday, August 12. The message was clear; investors have lost confidence in Macri’s ability to win a second term in October.

The intense reaction from the business community comes after many international companies, and the International Monetary Fund invested in Macri’s plan to reverse the trajectory of Argentina’s economy.

Originally published at on August 13, 2019.

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