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After months of turmoil and a $ 56 billion bailout from the IMF, talks about economic recovery in Argentina may be relative, but they are enough to give President Mauricio Macri hope ahead of the October election.
Investors ditched Argentinian assets three months ago after a public opinion poll suggested Mr Macri’s reelection bid was in jeopardy. The peso collapsed, exacerbating the economic turmoil that was an undesirable feature of his last year in office.
But the peso has since stabilized, appreciating 9% since early May, and a series of economic indicators are dragged in its wake. Monthly inflation fell from 4.7% in March to 2.7% in June, allowing real wages to pick up.
As a result, signs that the worst of a year-long recession has passed are increasing the president’s popularity.
“The bigger question is not whether there has been a turning point – it is a fact. The question is whether it will be enough for the government to win the elections, ”said Alejo Costa, strategist at BTG Pactual, a Brazilian investment bank.
Now all eyes are on a series of “primary” elections due on August 11, when voters should theoretically decide who heads each presidential list. In narrow political terms, the primaries are almost redundant: the parties have already chosen their lists. But the broader meaning of the vote will be whether it builds up Mr Macri’s momentum, or stops him in its tracks and ends the sense of calm in the markets.
A market selloff would fuel peso volatility, pushing up inflation and deteriorating real wages – and with them Mr Macri’s popularity.
The relative improvement in Mr. Macri’s outlook is not just due to the stability of the peso. A senior government official working on the election campaign also attributed the positive trend in recent weeks to the confirmation of presidential candidates last month.
Not only did this put an end to rumors that Mr Macri could withdraw from the race. The president chose influential senator Miguel Ángel Pichetto from the Peronist opposition as his running mate, allowing the government to present itself as more open and willing to dialogue, added his campaign manager.
Mr Macri’s team is also betting that the proximity of the elections will focus the minds of voters.
“It is starting to put people in the mental mode of choosing between concrete options, and no longer just whether or not they are disappointed with the government,” the government official said.
In what is shaping up to be an increasingly polarized race, Lucas Romero, who leads the local Synopsis poll, attributes a 50-55% chance of Mr. Macri’s victory, which would depend on the stability of the currency and inflation.
Although the economy has always been an important factor in elections, Mr. Romero argued that “the factor that best explains Argentina’s political positioning over the past 15 years is the conflict between Kirchnerism and the ‘anti-Kirchnerism’, referring to the husband and wife duo, Néstor Kirchner and Cristina Fernández de Kirchner, who ruled from 2003 to 2015.
Anti-Kirchnerism is stronger than ever, he said, as perceptions of corruption during the Kirchner era have deepened since Ms Fernández left office. This is in large part thanks to two scandals – one involving a former senior official who allegedly tried to hide bags full of dollars in a convent, the other involving the publication of a collection of notebooks kept by a driver from the government detailing alleged acts of corruption.
“The government still has a chance to win because no anti-Kirchnerist has emerged to lead the Peronist opposition,” he said.
Alberto Fernández, chief of staff under the Kirchners, is Mr Macri’s main rival, representing the political movement that has dominated Argentine politics for the past 70 years.
The gradual improvement in Mr Macri’s chances, despite the economy’s alarming performance over the past year, is reflected in a recent shift in market sentiment. The risk spreads on Argentine bonds have narrowed sharply over the past two months.
“The market is gradually buying [the idea that] momentum will continue for Macri, ”said Mr. Costa, saying that BTG Pactual’s recent positive revision of its previously more cautious stance towards Argentina is a“ good example of how the market is feeling ”.
But there is still a lot to play for. “There is a very strong emotional component to these elections,” said Graciela Römer, sociologist, highlighting a tension between disappointment at Mr. Macri’s achievements and fear of a return to populism.
To consolidate the victory, said Ms Römer, Mr Macri must convince Argentines that his painful reforms will eventually take effect. “He has to show that he needs a second term for all their sacrifices to bear fruit.”