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Argentine Investors Worried As Power Changes Hands

At the image of Sunday long-awaited general elections that confirmed victory of candidate Alberto Fernández from leftist Peronist party against outgoing President Mauricio Macri Partido Justicialista, investors remain cautious over potentially increasing interventionist policies in the country. In an attempt to preserve its foreign currency reserves as well as Argentine Peso from further depreciation (USD/ARS -59.40% year-to-date) due to money outflows, Argentina’s Central Bank deepens monetary policy measures to restrict dollar purchases, a move that does not necessarily rejoice bondholders amid a $57 billion IMF bailout granted last year and a $101 billion debt burden.

In line with August “PASO” primary elections establishing Alberto Fernández as favorite candidate for general elections, Cristina Fernàndez de Kirchner Peronist Party took power with a majority of 48% of the votes against the Conservative Party Partido Justicialista 40%, ensuring the minimum of 45% of the votes required to reject a second round. The latter results should therefore ensure Alberto Fernández to take function as Argentina’s President on 10 December 2019, as results of Congress and regional leadership should be released. However, the outcome does not seem to reassure markets, which consider that the transition from conservative to populist political forces goes hand in hand with increased economic intervention, starting with the concern of an increase in export tax levies that should eventually weigh on Argentina’s leading export sector, agriculture (est. 54% of total exports). Accordingly, investors will take close attention to today’s Fernández – Macri transition talks as clarity of both domestic and foreign policies plans to be adopted remain unclear. With a debt-to-gdp ratio jumping from 57.10% in 2017 to 86.10% in 2018, expectations tend to forecast that it should reach 100% by year-end, a trend that seems to confirm a haircut scenario for Argentina’s bondholders. With an economy growing at a pace of 0.60% in Q2 (-5.80% in Q1) and an inflation rate of 53.50% in September, not to mention the latest currency control measures combined with austerity fears, the Argentine peso is not expected to stabilize for the time being. Market-friendly policies announced by the new leading government would yet be supportive.

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