A New Direction for Argentina?

As regular LatAm INVESTOR readers will know, Argentina’s stock market has been one of the stronger performing Latin American investments over the last 12 months. It’s a striking example that orthodox business environments aren’t always the ones that produce the best returns.

“For the first time in more than a decade, Argentina seems likely to have a non-Kirchner government…”

But while the market may have performed well, foreign direct investment has remained low as investors shied away from a Kirchner administration that was perceived as confrontational towards large international investors.

Three new options

Yet now, for the first time in more than a decade, Argentina seems likely to have a non-Kirchner government. The likely new candidates are Daniel Scioli, Governor of Buenos Aires Province, Mauricio Macri, Mayor of Buenos Aires City, and Sergio Massa, Mayor of Tigre. Despite the fact that they hail from different parties – Macri opposes the current government while the others are part of it – they will face the same issues when they come to power. Namely: fixing the fiscal imbalances, resolving the holdout dispute and controlling inflation.

For ordinary Argentineans the high inflation rate – estimated at about 40% – is the biggest bugbear. It eats into the value of their savings while obtaining hard currency, such as dollars, is extremely expensive because of an overvalued official exchange rate. The inflation is linked to the fiscal imbalance, as Argentina is funding its deficit by money printing, so any long-lasting solution to the former would have to involve getting the country’s books in order. The holdout dispute is not really an issue for most Argentines as many of them side with the state against the funds that hold defaulted sovereign paper. Yet whichever candidate wins will probably be keen to resolve the issue as it will open up access to international capital markets and give their administration more conventional financing options.

Judging from early signs it seems that all three will adopt a more market friendly approach than current president Cristina Kirchner. And with Argentine equities and corporate bonds performing strongly it appears that the market is also pricing in a new era.