Select Page

Alberto Fernandez, 60, swept to victory in the first-round of the Argentinian Presidential election with 48% of the vote against 40% for Macri.

His win signals the return to power by Peronism — an anti-elite political movement that traditionally favors workers over business owners. But while voters rejected the austerity of Macri’s government, the outcome was ultimately tighter than expected.


Macri had to impose capital controls at the beginning of September after the peso plunged following August primaries in which Fernandez trounced the incumbent by 16 points. Reserves
continued falling amid capital controls and now stand at $43.5 billion.

Argentina tightened currency controls late Sunday after the opposition’s Alberto Fernandez won the presidential elections. The central bank will restrict dollar purchases by savers to buy just $200 per month compared with the $10,000 per month previously, according to a central bank statement.

The move looks to preserve international reserves during the political transition which will culminate in the handover on Dec. 10 but risks causing the black market exchange rate to

Last week Argentines rushed to buy dollars and withdraw deposits ahead of the vote on concern that more controls were coming amid an economic crisis.

Argentina’s bonds are trading in deep distressed territory at about 40 cents on the dollar, ( already discounting a 60 % haircut rate ) and the government said it wants to extend maturities both with private creditors and the International Monetary Fund.

The decision will likely fall to the incoming government though Fernandez has yet to lay out an economic plan or name his cabinet.

Alberto Fernández already has plenty of economic woes to solve when he takes office in December. The country is grappling with recession, the peso is constrained by currency controls and large debt repayments loom on the horizon.

The center-left Peronist will take on the top job from Dec. 10, with a juggling act to solve thorny issues like poverty while keeping the economy on track and fending off angry creditors.

Now that the campaign is over, Alberto Fernandez is going to need to start fixing the economy. It is likely that Fernandez il work closely with Macri and the IMF to solve the issues and not fall into the traditional populist tendencies of the Peronist Party.


During the almost four years of under Macri, the peso currency has devalued around 85%, which stoked inflation, running at an annual rate of more than 50%.

The primary election in August – which Fernandez won by a landslide – triggered a sell-off that dented savers’ confidence in the currency further and drained reserves as the central bank defended the peso.

Fernandez will need to decide whether to loosen controls once more – and risk a peso fall – or tighten them further. The most likely option is a strict currency control and the talking up of the currency higher.

Already, since the announcement of the elections results last night, the Peso has strengthened to below 60 marking an interesting double top.

Reuters Graphic


Argentina struck a $57 billion financing deal with the International Monetary Fund in 2018, pledging to reach a primary fiscal balance in 2019 and a surplus of 1% of GDP in 2020.

The economic malaise has hit tax collection and rising costs on public budgets from inflation are putting the country’s fiscal goals – key to its relationship with the IMF – at risk.

Fernandez has also suggested he will help Argentines struggling with costs more, including lowering tariffs, increasing pensions and helping with free medication for retirees – all which will strain the public purse.

Reuters Graphic

We expect economic activity to recover somewhat now that Fernandez has been elected and confidence comes back, improving slightly tax revenues. It remains to be seen what will be done on the expense side of the equation.


Argentina is facing a the liabilities arising from a mountain of debts, with a sharp jump in repayments due next year.

Argentine officials are set for tough negotiations with creditors to restructure and Fernandez has already announced a 20 % haircut taking example on Uruguay’s 2003 debt re-scheduling.

A Deutsche Bank report last month showed debt repayments rising to $26.5 billion next year, adding that the liquidity situation suggest that a partial debt default in 2020 will be very hard to avoid.

However, as the chart above shows, Argentina still has in excess of 40 Bln US$ of foreign exchange reserves, more than needed to make the payments scheduled for the end of the year and next year. The problem will really appear in 2021

Reuters Graphic

Fernandez declared last month that the country just needed more time and could avoid steep losses on its debt for creditors. “We will push back obligations over time so they rise in a more benign way, not exponentially,” Fernandez said.

Among Fernández’s advisers is Guillermo Nielsen, a former finance minister who carried out the debt restructuring of 2005, when the country agreed with 76% of the large bondholders to restructure some $100 billion in defaulted debt since 2001.

Government data show the country’s total debt totaled $310.8 billion at the end of September, or 86% of the GDP,

In fact, Argentina’s debt/GDP ratio is not much worse than the average of the world’s largest economies. However, the problems of Argentina mainly comes from a dearth of savings, a recurring and systemic inflation problem that forces high interest rates and slows economic growth and employment down.

The Macri Government has initiated some structural reforms that went down well with the people and did not prevent inflation from rising sharply during his mandate.


The economy fell into the red in the second quarter of 2018, hit by a hard drought and doubts about the country’s financial position. This sparked a devaluation in the peso and a significant rise in interest rates to prop up the currency.

While edging out of recession in the second quarter of the year, the outlook has since darkened and the country’s economy is expected to shrink 2.9% this year and drop again in 2020.

Fernandez has criticized the high interest rates – which have stymied growth by choking off access to credit for many. “The first thing we have to do is promote consumption and also become exporters again,” he said during the election campaign.

Reuters Graphic

Overall, the recent volatility of the Currency, Bond market ad equity markets had more to do with psychological fears related to the elections than with drastic and unmanageable fundamentals.

Now that he is elected, Fernandez will have no choice but to pursue more orthodox policies than his Peronist predecessors of the past and to re-assure the financial markets.

The deep discount of the Government bonds is actually not justified by the fundamentals of the Argentinian economy and gives Fernandez an opportunity to buy-back some of its debt at a Depp discount with a credit line form the IMF and reduce the overall stock of debt of the Government

The foreign exchange controls enables him to prevent the Peso to fall further and lower interest rates in line with the fall in inflation that will inevitably happen if the currency stops falling.

Growth should recover then and tax receipts as well.

IN CONCLUSION, we think the markets have over-reacted to the potential election of Fernandez and that the discount of 60 % on Argentina’s dollar bonds is way too high.

We see the hair cut, if there is a haircut, not to exceed 20 to 22 % and actually think that there will be a maturity extension rather than a hair cut.