Argentina’s Economic Recovery Just in Time for the Mid-Term Elections

Executive Summary

With the mid-term elections approaching, the Macri administration seems to be heading for another unlikely win if the result of the primaries is any indication of voters intentions on October 22. The primaries, or PASO, showed a highly divided Peronist opposition and thus has allowed Macri’s governing coalition, Cambiemos, to take advantage of that division, contingent upon the PASO primaries being a true indication of what is going to happen on October 22.

Perhaps assisting this primary election result was the performance of the Argentine economy, whose monthly economic activity indicator, a proxy for GDP growth, showed a very strong economy at the end of the first half of the year. According to this index the Argentine economy grew 4.0 percent on a year-earlier basis in June. While growth was still weak during the first half of the year, up only 1.6 percent versus the same period a year earlier, it is clear that the Argentine economy has momentum. The Argentine economy should continue to show strong rates of growth during the second half of the year, just in time to support the Macri administration during midterm elections, which have ordinarily turned against the party holding power.

However, as is the case in politics, anything could happen between today and October 22, thus the Macri administration will need to tread very carefully between the very difficult Argentine social and political landscape. Security, street violence and social protests, a high fiscal deficit, high inflation and high interest rates are some of the risks that will threaten the administration as it moves to take advantage of a very fragmented political opposition.

If the Primaries Serve as a Guide…

The Macri administration has been celebrating the better-than-expected results of the PASO primary elections, which are supposed to elect the candidates who will contest the mid-term elections in late October of this year. These primary elections have transformed into a sort of “survey” on how the parties are going to perform in the upcoming elections. The mid-term elections are normally a very difficult test for the party in power, especially if the economy is not doing well. However, the economy has started to do better, and the expectation is that by October 22, which is when the elections are going to be held, this improvement is going to be more broad based, which many analysts say could further help the Macri administration.

Furthermore, mid-term elections are normally a good barometer of whether the current president has any chance of being reelected in two years’ time when the next presidential elections are scheduled. In this sense, and according to political analysts, the results are painting a good future for Macri’s Cambiemos political alliance, and for Macri himself. However, the PASO do not elect anybody into office, they just choose each party’s candidates as well as which parties will participate in the mid-term elections. The parties that receive more than 1.5 percent of the votes will participate in the mid-term elections.

This means that everybody needs to wait until the actual mid-term election in October and, for the Macri administration, hope for the outcome the PASO results have predicted. However, in politics, anything is possible, and mistakes made from today until October 22 will be paid for with votes and electoral results.

During the mid-term elections there will be 127 seats up for grabs in the lower house of Congress out of 257 seats. That is, almost half of the members are going to be renewed. If the PASO primary results stand (a big if), President Macri’s governing coalition, Cambiemos, could add about 18 new seats in the lower house. This will take the Cambiemos coalition from 86 seats to about 104 seats. Quorum in the lower house of Congress is achieved with 129 members, which means that the Cambiemos coalition will still not have enough to attain quorum. However, analysts say that governing will be easier because it will not need to negotiate with as many opposition members as now.

Meanwhile, the Frente para la Victoria (FpV), which is the main Peronist opposition, will go to having 76 members from having 72 members. Smaller parties and some regional/provincial parties will probably elect other members to the lower house as well, which will make the legislative process difficult but not as difficult as it has been during the past two years.

The Senate, on the other hand, will renew one third of its members, which is 24 of the 72 seats. The system allocates two senators per province for the party that comes in first and one senator for the second place finish. There are eight provinces that will elect three senators each: the provinces of Buenos Aires, Formosa, Jujuy, La Rioja, Misiones, San Juan, San Luis, and Santa Cruz. Interestingly, two ex-presidents from the Peronist Party are contesting for a senate seat. In the Province of La Rioja, current senator of the province and ex-president of the country, Carlos S. Menem, has been fighting the courts in order to renew his senate seat. A court said that he cannot run again because of a judicial case against him while an appellate court has allowed him to run for the seat. However, analysts in the country estimate that he will probably not be able to assume a new senate term because the court will probably condemn him to house arrest, as he is in his late 80s. Ex-President Carlos Menem comes from the right wing of the Peronist Party.

The second Peronist ex-president is Cristina Fernández de Kirchner, who represents the left wing of the Peronist Party, and who won the PASO primaries running for a senate seat from the province of Buenos Aires. Her newly created party, Unidad Ciudadana, which is one of the many outgrowths of the Peronist Party in the country, came in first by a very slim margin of votes, about 0.21 percent difference to the candidate of the governing coalition, Cambiemos. So if the October elections come in like the PASO elections, her party will put two senators in the Senate and the third will be from the Cambiemos coalition. Perhaps this is the mid-term election result that everybody will be following, because the election has the potential to reverse the slight margin Mrs. Kirchner got, and Cambiemos could add one more senator to the upper chamber of Congress.

Probably the most interesting developments from the PASO primaries results were that Mrs. Kirchner’s influence on the national political landscape has diminished considerably since she left power. The polls were predicting that she would win comfortably in the Province of Buenos Aires, but it remains as a toss-up. Furthermore, the province of Santa Cruz, where Mrs. Kirchner is from and where the Kirchner’s have had a lock on power for the past several decades, went to Macri’s coalition in the PASO elections, which is an indication of how difficult it will be for the Peronist Party to unify behind a unique candidate.

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