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Argentina: The end of kirchnerismo

urna banderaAnd the beginning of saner economic policies, perhaps

FIRST, she thrust her finger skyward. Then came a right-left combo, punctuated with an eruption of hip swaying. Beside her with a rigid smile stood Daniel Scioli, the governor of Buenos Aires province and presidential candidate, looking like a child mortified by the antics of his mother. The campaign rally, held earlier this month, was meant to be for him, but the outgoing Argentine president, Cristina Fernández de Kirchner, stole the spotlight.

For the last time, Mr Scioli hopes. On October 25th Argentina will hold the first round of elections to choose a new president, along with half the lower house of Congress and a third of the Senate. They will bring to an end 12 years of government under Ms Fernández and her husband, Néstor Kirchner, who died in 2010. The main question to be settled is how much continuity there will be with the Kirchners’ populist and divisive rule. Mr Scioli is running as Ms Fernández’s heir, under her Peronist party, the Front for Victory (FPV), yet hopes to be his own man. His main rival, Mauricio Macri, the mayor of the city of Buenos Aires, leads an electoral coalition called Cambiemos, “Let’s Change”.

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Argentina needs change. As Ms Fernández slips out of office the economy is starting to crumble. Currency controls and trade restrictions, which she imposed in 2011, are choking productivity; inflation hovers at around 25%. The budget deficit is swelling and foreign-exchange reserves are dwindling. Argentina cannot seek external financing until it ends its standoff with creditors who rejected a debt-restructuring plan. Unless the new president quickly reverses Ms Fernández’s populist policies, a crisis is inevitable.

Few Argentines know that yet. Many credit the Kirchners with rescuing the economy from a slump in the early 2000s and for the growth that ensued (which owed a lot to high prices for soyabeans, the biggest export). They were open-handed leaders: 40% of the population receives a pension, salary or welfare from the government, a share that has doubled since Ms Fernández took office in 2007. Among recent presidents, only her husband left office with higher approval ratings.

That is why Mr Scioli subjects himself to awkward appearances with her. Recent polls suggest that he is close to the threshold needed for victory in the first round: 40% of the vote with a lead of ten percentage points over his nearest competitor. Mr Macri’s lacklustre campaign has been hurt by corruption allegations against a congressional candidate from his coalition. He splits the anti-Fernández vote with Sergio Massa, a feisty Peronist who left FPV and is third in the polls. If Mr Macri can force a second round, to be held on November 22nd, he might beat Mr Scioli by picking up Mr Massa’s votes. Poliarquía, a polling group, puts support for Mr Scioli in a run-off at 49%, with Mr Macri at 45%.


Whoever wins will have to disappoint voters. To restore competitiveness and open production bottlenecks the next president will have to allow the peso to depreciate and lift restrictions on exports and imports. The gap between the official value of the peso and the “blue-dollar” (ie, free-market) rate has widened to around 70%. Subsidies will have to be cut to narrow the budget deficit, expected to be about 6% of GDP this year (see chart). The central bank is likely to raise interest rates to force down inflation. That may trigger a recession. To have any hope of attracting international capital Argentina will have to strike a deal with its hated creditors.

Mr Scioli hopes that both kirchneristas and their foes will see in him what they want to see. The country can solve its economic problems with “no [fiscal] adjustment, no mega-devaluation and no [economic] shrinkage,” he told The Economist. Any measures will be “gradual”. An inflow of dollars will keep the peso strong. “There will be joy,” he promises.

Mr Macri is more market-minded than Mr Scioli and does admit that the peso will have to devalue. But he also downplays the hardship to come. That said, the front-runners have more in common with each other than they do with Ms Fernández. They are less confrontational and have gathered impressive teams of advisers to whom they listen and delegate. Each is eager to repair Argentina’s strained relations with the United States. Both want to attract investment, relax trade controls and resolve the debt standoff.

What distinguishes Mr Macri most is his determination to break with the Peronist practice of aggrandising presidential power at the expense of other institutions. Ms Fernández enfeebled Congress, the central bank and the official statistics agency, which she stopped from reporting bad news. She undermined the independence of the press and had a go at the judiciary. Mr Macri’s advisers say he would build up institutions with the power to check the presidency. He “will do a real shock to recover the institutional credibility of the country very fast,” promises Federico Sturzenegger, a pro-Macri congressman.

The risk, though, is that Mr Macri might not be able to do much of anything. If elected he will lack a majority in both houses of Congress. At most, two of Argentina’s 24 governors will be his allies. His campaign manager, Marcos Peña, insists that he overcame similar hurdles as mayor of Buenos Aires. But managing a rich city is far different from governing a fractious country of 40m. The two non-Peronist presidents since the military dictatorship ended in 1983 were both forced out of office early.

Mr Scioli has a different worry: that Ms Fernández will continue to upstage him after she leaves the presidency in December, especially if the economy runs into trouble. Many congressmen are loyal to her, as is his likely successor as governor of Buenos Aires province, the country’s most populous. Ms Fernández has said little about her plans, but the song that set her dancing may provide a clue: “A thousand years can pass, you will see a lot fall down. But if we stick together, they won’t hold us back.” It did not sound like a farewell.

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