Five key takeaways from Argentina’s midterm elections

Mauricio Macri’s Cambiemos coalition has consolidated its political power following an excellent performance in Argentina’s legislative elections on October 22. In this election, approximately half of the 257-seat lower house (House of Deputies) and one-third of the 72-seat upper house (Senate) was up for grabs.

FSG predicted that Cambiemos would have a better electoral result on October 22 than the PASO primaries in August. Cambiemos won 41% of the national vote on Sunday compared to 36% in August. More importantly, Cambiemos won seats in the five most populist provinces (Province of Buenos Aires, Autonomous City of Buenos Aires, Córdoba, Santa Fe, and Mendoza). This includes defeating ex-president Cristina Fernández de Kirchner (CFK)’s Citizen’s Unity party in the senatorial race in Buenos Aires, which was a proxy vote between Mauricio Macri and CFK.

MNCs should view Argentina’s midterm election results as a strong “vote of confidence” for Mauricio Macri’s administration and his reform agenda, which will ensure long-term growth.

Five takeaways from Sunday’s election results

  1. The Cambiemos coalition has consolidated its power and Mauricio Macri should be viewed as the presidential favorite in 2019. Sunday’s results clearly showed Cambiemos as a long-term political force in Argentina. On a national level, Cambiemos has increased its electoral support from 32% in 2015 to 41% on October 22. Furthermore, Mauricio Macri is enjoying the highest levels of support during his mandate (43% of Argentines have either a positive or very positive view of the president, according to OPSM). If one considers the threshold to avoid a runoff in Argentina is 45%, it is not impossible to believe that Macri could win a second term in 2019 in the first round.
  2. The reform agenda is in full march. Sources from Argentina’s cabinet have already declared that a fiscal responsibility law and reforms on tax, labor, and capital markets will be presented to congress by the end of the year. Cambiemos’ plurality in both houses of congress combined with the fragmented opposition mean that the likelihood to pass these contentious reforms is higher than ever. See the chart below which summarizes the reforms: 
  3. The Peronist opposition is in complete disarray. The fact that the Peronist opposition split into three parties for October’s legislative election is the primary reason for Cambiemos’ strong results. Peronism now has no clear leader. Sunday’s results stressed this even further since CFK was defeated in the Province of Buenos Aires, a traditional Peronist stronghold, against a relatively unknown candidate (Esteban Bullrich). All three losers in this senatorial race are seen as Peronist presidential hopefuls in 2019 (CFK, Sergio Massa and Florencio Randazzo). The other big hit to Peronism was Cambiemos’ win in Salta, the home of other presidential-hopeful Juan Manuel Urtubey. The Peronist party will remain in a state of uncertainty and division for the short-term. This will make legislation easier because it will not be difficult to identify pragmatic and moderate Peronists and regional parties who act at the behest of their governor. Argentine governors have strong influence over their senators due to the executive’s ability to prioritize revenue distribution to provinces in exchange for votes in congress.
  4. CFK is the leader of the opposition for now, yet her return to the Casa Rosada in 2019 is very unlikely. CFK’s Citizen’s Unity party won the second-most number of votes nationally. However, she will fail to make bridges with traditional Peronist elements because of their attempts to distance themselves from her rhetoric and possible corruption allegations.
  5. The biggest risk in the medium-term remains a united opposition. The Peronists still have two years to recover for general elections in 2019. The biggest risk to Cambiemos’ reform agenda is an opposition pact between all of Peronism to obstruct legislation. However, this would require an agreement with Citizen’s Unity. Given the fact that many Peronist candidates also ran on an “anti-Kirchner” platform, this is unlikely in the short-term.

Actions to take

MNCs should consider taking the following actions after Sunday’s midterm results:

  • Monitor progress on the reform agenda to rapidly incorporate the reform results into your company’s strategy
  • Target upper-class consumers and/or businesses who will be likely willing to make riskier purchases or acquisitions in an environment of more political certainty
  • Follow the pace of foreign direct investment (FDI) inflows and create an action plan to target particularly active companies

FSG will continue to monitor the progress of structural reforms in the aftermath of the midterm elections.


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