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Argentina’s primary results in three-way race, increasing market uncertainty ahead of October elections

Argentina’s primary presidential election concluded with an unexpected three-thirds scenario led by libertarian candidate Javier Milei, increasing uncertainty regarding who could become the country’s next president, according to political and market analysts consulted by Debtwire.

With fewer campaign resources, Milei “managed to be heard by the population” and secured 30.04% of votes, outperforming the main political coalitions, said a source close to Javier Milei’s La Libertad Avanza campaign team.

Main opposition coalition Juntos por el Cambio obtained 28.27% of votes, and ruling party Union por la Patria, 27.27%, according to the latest results provided by Argentina’s Electoral Direction.

The primaries’ result was deemed an “earthquake” by political analyst Sergio Berenzstein, during a Zoom discussion this morning with Argentine portfolio managing firm PPI. Milei’s results were “amazing” even in provinces where he spent zero resources campaigning. It is similar to what happened in Brazil with [Jair] Bolsonaro and in Mexico with [Andres] Lopez Obrador,” he said.

However, the scenario is still open ahead of the 22 October general elections, according to Berenzstein. It is yet to be seen whether Milei will be able to consolidate his results, considering the slim difference he obtained compared with the main political forces, and the fact that in the general election there will likely be around 5% or 6% more voters than in the primaries, the analyst said.

The Juntos coalition, which was seen by a majority of polls as the leading contender in the primaries, had “its worst election since it was created” in 2015, said Berensztein. They lost a lot of support, but it is true that in the past they have managed to improve their results in general elections versus their results in the primaries, he said. It is yet to be seen if Patricia Bullrich, who was elected as the coalition’s candidate for Juntos over contender Horacio Rodriguez Larreta, can increase her support to around 35% and make it to the runoff, said the analyst.

“It was a victory of antipolitics,” said a source from the Juntos campaign team. “Milei is an expression of Argentines’ disappointment and anger, but we need to find a way to deliver the message that he cannot replace politics and institutions,” the source said.

The ruling coalition Union por la Patria, with candidate Sergio Massa, also emerged weakened in these primaries, said the Juntos source. More than 60% of Argentines voted against them and in favor of right-wing policies and a less interventionist view, the source said.

“Milei’s performance in the primaries is likely going to improve in October,” said an Argentine portfolio manager following the matter. “If he doesn’t make too many mistakes, he will probably grow amid the new enthusiasm and as voters now see him as a competitive candidate,” the source said.

On the contrary, the ruling party will have to navigate two months of financial instability that would probably weaken it, while Bullrich will have to face a tough campaign with one opponent on her right and the other to her left, the portfolio manager said.

Fear of the unknown    

Argentina’s sovereign bonds traded negatively Monday after the primaries results, with global bond prices plummeting 10% on average, according to a second portfolio manager. “While Milei clearly proposes pro-market policies, investors are showing fear of the unknown,” the trader said.

The libertarian candidate’s government plan includes a reform of the tax, labor and pension systems, the privatization of loss-making public companies, the elimination of the Central Bank and a dollarization of the economy, among others.

“Abolishing the Central Bank and dollarizing the economy will be huge endeavors considering Milei’s probably limited support in Congress,” said Hans Humes, the CEO of Greylock Capital Management.

“Dollarization is a legitimate issue to discuss for a country that has had the currency weakness Argentina has. Abolishing the Central Bank and all the Health, Education and Environment ministries, if implemented, would prove deeply unpopular,” he stated.

While Bullrich and Milei (to an extent) speak of economic plans that traditionally appeal to the financial community, the whipsaw of change in political direction could be very disruptive, said Humes. Markets like stability, continuity and predictability, he said.

The market can see that “the next few months will be really difficult for Argentina after the primaries’ results,” said a fixed-income trader. “We will have more inflation, more poverty, before any policies to correct macro imbalances can be applied,” the fixed-income trader said. While very good years can come with a new administration, the transition may be turbulent, the fixed-income trader said.

“Argentinians overwhelmingly favored the most forceful right-leaning opposition factions in the primary,” Martin Castellano, head of LatAm Research at the Institute of International Finance, posted on his X account. “While Milei’s proposals could trigger concerns, the election outcome enables much-needed policy changes. Asset prices should react favorably despite the tough transition ahead,” he stated.