Argentina’s Coalition Loses Senate Majority After Vote
(Bloomberg) -- Argentina’s ruling coalition lost control of the senate after a stinging defeat in midterm elections, piling pressure on President Alberto Fernandez’s government as it struggles with a wrecked economy.
Fernandez’s left-wing bloc was behind in six of eight senate races with at least 98% of votes counted in each province after Sunday’s ballot, signaling that the government will drop below the 37 senators needed to move legislation forward by itself. It marks the first time since 1983 that Peronism, the movement founded by Juan Peron in the 1940s, won’t have control of the chamber.
Losing its senate majority represents a major setback for Vice President Cristina Fernandez de Kirchner, who presides over the chamber, and will complicate the passage of legislation. However, investors will probably cheer the prospect of a bigger role for the opposition in curbing the coalition’s power.
“Fernandez will become a lame duck for the remainder of his term - more concerned with maintaining the unity of his coalition and the support of Kirchner than with delivering a credible economic plan,” said Jimena Blanco, Americas director at Verisk Maplecroft. “The federal government will struggle with governance and policy implementation.”
Voters appear to have punished Fernandez’s government for its fumbled handling of the pandemic and an economy marked by 52% annual inflation, 40% poverty and jitters over its weakened currency.
Nationally, the opposition Juntos por el Cambio took 42% to 34% for the ruling coalition with 99% of votes counted, according to local newspaper La Nacion.
In lower house races, opposition candidates narrowly won in the Province of Buenos Aires, the country’s largest and most politically influential district. The opposition also took other key congressional races in the City of Buenos Aires by a landslide, as well as in typically Peronist provinces like Santa Cruz and La Pampa.
Still, the government improved its performance compared to the September primary and retained its lead in the lower house.
Argentina stocks rallied after its defeat two months ago. The benchmark index climbed 25%, the best performer globally, on expectations of policy change. On Monday, the nation’s $20.5 billion in dollar-denominated bonds due in 2035 rose as much as 1 cent to about 31.2 cents on the dollar, their biggest gain since the aftermath of primary elections held Sept. 12.
“The market is likely to take a net positive view of the election results,” Goldman Sachs Group Inc. economist Alberto Ramos wrote in a research note. “A more market-friendly composition of congress could lead to more effective checks and balances and ultimately a policy regime shift in 2023.” Still, with the government’s back to the wall, he noted “the risk of more populist near-term policies.”
Speaking after the results came in, Fernandez said the government will submit a bill to congress with a multiyear economic program in the first week of December, and will seek consensus from the opposition on this “shared agenda.” That bill will seek to include “whatever best understandings we have reached” with the International Monetary Fund, with which the government is negotiating to reschedule over $40 billion in payments owed.
Read More: Post-Election, Argentina Will Focus on a Deal With the IMF
That debt is “the biggest stumbling block we face as we look to return to economic recovery and a more equitable country,” Fernandez said in taped remarks. “I won’t fall for those who speak of the benefits of austerity, a path that’s already been tried and failed.”
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“We do not expect the government to accept any aggressive fiscal or monetary shift. This is implied by the use of the word ‘sustainable’ and by Fernandez’s explicit mention that growth is a better solution than an adjustment to the debt crisis.”
-- Adriana Dupita, Latin America economist
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Fernandez added that he has support from his coalition to pursue this bill. While that is an “encouraging” statement, questions remain on whether the wide-ranging leftist coalition will be able to move past its differences, said Benjamin Gedan, Director of the Argentina Project at the Washington-based Wilson Center.
“It’s far fetched to claim that a plan that could meet IMF standards and satisfy the IMF board is fully supported by the Peronist coalition,” said Gedan, adding that Fernandez’s assertion that he has the support of its diverse elements “strikes me as wishful thinking.”
Investors will be keeping an eye out on the next statements from Kirchner, who herself was president from 2007 to 2015. After the September primary, she published an explosive essay criticizing the president over strategy, including what she said was a lack of spending. It’s unclear what policy or cabinet changes Kirchner may now demand. She didn’t comment on the results Sunday night.
“Cristina’s instinctual reaction to any political weakness is more spending, more money printing, so it’s hard to picture an easy dialog within the coalition to arrive at a consensus for a new program,” Gedan said.
Sunday’s election also represents a comeback for the opposition bloc of former President Mauricio Macri, who was voted out in 2019 amid a historic recession. Turnout was 72%, one of the lowest levels in over three decades.
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