Argentina Cabinet Revolt Puts Fernandez in Political Crisis

(Bloomberg) -- Vice President Cristina Fernandez de Kirchner’s closest allies in Argentina’s cabinet offered to resign on Wednesday, amid mounting political pressure on President Alberto Fernandez’s government following a primary midterm defeat.

Interior Minister Eduardo de Pedro and the head of the pension agency Fernanda Raverta sent the president resignation letters, according to their press officers. The ministers of justice, housing and sciences also offered to step down, as well as the head of the agency that handles pensioner health plans, according to newspaper La Nacion and a tweet from a congresswoman for the coalition. All of them are part of Fernandez de Kirchner’s far-left groups within the ruling coalition. 

The cabinet shake up exposes the internal divide within Frente de Todos, as the broad coalition is known, between Fernandez’s more moderate wing and the loyalists to Fernandez de Kirchner, who governed the country between 2007 and 2015. It’s also the biggest political upheaval since Fernandez took office in December 2019, and diminishes chances of the coalition mounting a comeback within two months of the  midterms. 

What Bloomberg Economics Says

The cabinet commotion at this point would be read as a signal of change in policy course -- with the odds tilted to more, not less populism. It also bodes poorly for the prospect of a deal with the Fund, as it evidences a lack of consensus on policy within the coalition.

--Adriana Dupita, Latin America economist

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Read More: Argentina’s Ruling Coalition Dealt Blow in Midterm Wake-Up Call

Argentine sovereign dollar bonds rose on the news of the departures. Notes due in 2035 climbed as much as 1.5% to 36 cents on the dollar after the resignations were announced. Earlier this week, Argentina’s dollar bonds rallied and stocks jumped after opposition candidates did better than expected in the primary elections.

A spokesman for Fernandez didn’t immediately respond to a request for comment. 

On Sunday, the government coalition was soundly defeated in the primary vote, including the battleground province of Buenos Aires, signaling it may lose key Congress seats in November. That could lead Fernandez de Kirchner to either distance herself from the coalition’s likely defeat, or seek more control over the government’s policies, said Eduardo Levy Yeyati, dean of the school of government at the University of Torcuato di Tella. 

“In both cases, it’s clear the coalition no longer exists,” Levy Yeyati said. Fernandez de Kirchner’s allies “are blaming the defeat on the president’s moderate approach and see more populism as the solution.” 

The president has not yet announced if he will accept the resignations. Earlier in the day, Economy Minister Martin Guzman said at an event that the government would be meeting a Wednesday deadline to submit its 2022 budget to Congress. To some analysts, the crisis presents Fernandez with an opportunity to push his less-radical leftist views. 

“We may be looking at a new Alberto Fernandez, who has decided to turn his back on Cristina Fernandez de Kirchner,” said Ramiro Blazquez, an analyst at BancTrust & Co. in Buenos Aires. “The resignations of hardcore Kirchnerists, as well as Fernandez’s support of Guzman, are helping dispel fears of radicalization that have kept investors on their heels and held bonds back from rallying further.”

Fernandez, who has resisted doing cabinet changes after the vote, is expected to unveil new economic measures as soon as Thursday aimed at winning back voters before the midterm vote on Nov. 14.

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