How should multinationals interpret Argentina’s PASO primaries?

Argentines will head to the polls on August 13 to vote in the primaries for October’s legislative elections. While any elections in Latin America, especially Argentina, create uncertainty for MNCs, it is important to separate signal from noise. MNCs should view the PASO in Argentina as an inaccurate test-run before the real legislative elections on October 22. 

What are the PASO primaries?

The PASO (Primarias Abiertas, Simultáneas y Obligatorias – Open, Simultaneous, and Obligatory Primaries) determine who will compete for each party in the October legislative elections. Argentine citizens choose their preferred candidates to form a party list to represent the party in October. However, many parties only offer one possible candidate slate, so the PASO matter more to gauge voter intention than to define specific candidates.

The PASO will be the first indication of voting preferences, but these are likely to change

Because the biggest political parties have already determined their candidate lists this year, it is important to understand why the PASO are more noise than signal:

  • Voting in the PASO, albeit obligatory, is not a binding decision. Argentines are not obliged to vote for the same candidate list in October as they did in the PASO. They are not even bound to vote for the same party. Thus, even though the PASO will provide early voter intention, October’s results could be different. In the 2015 presidential PASO, for example, Daniel Scioli received 38.41% of the vote, while Mauricio Macri received 24.3%. Macri won more support after the PASO and won the presidential elections that December.
  • Most voters will not decide their final vote until just before the October elections. A survey by the Program of Public Opinion from Universidad Abierta Interamericana suggests that 21.2% of voters will not decide their selection until a week before the legislative elections. An additional 13.5% will not decide until they are in the voting box. This means that a large portion of the population can be swayed in the two months between the PASO and the October elections.

Buenos Aires battleground will be a proxy for assessing past versus present

Most of the emphasis regarding the legislative elections has been centered on the senatorial elections in the Province of Buenos Aires. The province is the largest district in the country, but it will also act as a proxy vote for the economic models of President Mauricio Macri and ex-President Cristina Fernández de Kirchner (CFK).

MNCs should be rightfully concerned about CFK’s disruptive abilities as a senator, but they should also understand that the predicted political ramifications of her comeback are melodramatic.

  • The electoral system allows for three senators from the Province of Buenos Aires. During the October legislative elections, the party list that receives the most votes will receive two senatorial seats, while the runner-up receives one. Currently CFK’s Unidad Ciudadana (Citizen’s Unity) party list is polling first between 30-36%. Her support base is unwavering, which means the floor of her electoral result is quite high. Unless indisputable corruption evidence comes to light in the next two months, she is practically guaranteed a seat in the Senate.
  • CFK will lack the political support in congress to reverse economic normalization. Even if CFK wins a Senate seat, corruption allegations have alienated CFK outside of Buenos Aires Province. The Partido Justicialista (Justicialist Party) severed ties with Kirchner allies and will field its own candidate in most districts;the coalition between the Justicialist Party and CFK’s former Frente para la Victoria (Victory Front) party no longer exists. This means that CFK’s new Citizen’s Unity party has few political allies. They will not command as loud a political voice as the Victory Front and Justicalist Party coalition did from 2013 to 2015.

Implications for MNCs

MNCs should monitor the PASO as a rough simulation of the legislative elections that take place on October 22. Even though the vote is not binding, a strong showing by the incumbent Cambiemos party, especially in the Province of Buenos Aires, should alleviate some political uncertainty.

In addition, the results of the PASO election will either stabilize the Argentine peso or create more FX volatility. The peso has depreciated more than 8% against the US dollar since CFK announced her candidacy on June 24. A poor electoral result in the PASO by Cambiemos may result in further depreciation, reducing domestic earnings.

Despite two months of potential political volatility, FSG believes that Cambiemos will win seats in the October legislative elections, due to fragmentation of the opposition and tangible economic results in recent months. Such a result would increase governability and provide Cambiemos a stronger mandate to pass further economic reforms.

FSG will provide further analysis after the conclusion of the PASO.

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One thought on “How should multinationals interpret Argentina’s PASO primaries?

  1. Maria Jose Monti

    Alex, thanks for the article. I think companies should also monitor the corruption cases currently under Justice investigation. In my opinion, if the judges -finally- decide to move forward with some of the corruption cases we will see a new political landscape that will facilitate investments and bring more predictability and stability for economy growth. Looking forward to your articles about Argentina. Saludos, Majo

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