Argentina's primary results support Macri government's credit- positive policy reform efforts

Thursday, August 17, 2017

Research Report by Moody's Investors Service

Last Sunday, Argentina (B3 positive) held legislative primary elections ahead of the October 2017 midterms. President Mauricio Macri's Cambiemos coalition obtained 36% of all votes for the lower house of Congress, the largest single-party share of the national vote. The vote results improve on the coalition's performance in the most recent election in 2015 and, if repeated in October's midterms, would expand the number of Cambiemos legislators in Congress. The Cambiemos win provides the government with strong political support to continue pursuing policy reforms that would be credit positive for the sovereign.

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Participation in the primaries is mandatory for those over 18 years old, while citizens 16 and older are eligible, but not required, to vote. Voters can cast a single ballot for any party. The primaries usually indicate voter preference ahead of October's general elections. In past election years, the general election results were similar, but not always identical, to the primary vote outcomes. In the midterm elections, one half of the Chamber of Deputies and one third of the Senate will be up for renewal.

In its first 20 months in office, the Macri administration has dramatically changed Argentina's policy stance. It freed the exchange-rate market, made lowering inflation a priority, raised energy tariffs that had been frozen for years, and returned to the international capital markets. We believe these are important creditpositive changes. However, an economic recession last year increased the risk that reform fatigue would lead to a midterm loss, stalling the reform agenda.

The government has indicated that it will pursue several important legislative initiatives next year, including tax, labor and pension reforms, key measures to ensure the economy returns to continued growth and sustainable fiscal balances. Political resistance to such reforms has been strong in the past. An increased congressional presence would bolster Cambiemos' negotiating power and ability to pass legislation.

Currently, the governing Cambiemos coalition has a minority in both houses of Congress. After the elections, Cambiemos will still have a minority but will expand its overall presence (see Exhibits 1 and 2 below). Cambiemos is and will remain the largest single party in the Chamber of Deputies. In the Senate, the Kirchnerismo party remains the single largest block.