Argentina’s Markets Face Uncertainty After Shock Primary Election Win

Introduction

Argentina’s markets are experiencing uncertainty following a surprising victory in the primary elections by far-right libertarian Javier Milei. Milei, an eccentric economist known for his rock-singing and wild hair, exceeded expectations by receiving around 30% of the vote with over 90% of the ballots counted, making him the leading candidate. This unexpected result has shaken up the race towards the general elections in October, causing concerns among investors.

Impact on Markets

The primary elections in Argentina serve as a dress rehearsal for the upcoming general elections. Market participants were hoping for a strong performance by more moderate candidates, but they had a disappointing night. As a result, the peso currency is expected to weaken in parallel markets, and bonds, which had been performing well in recent weeks, may face downward pressure.

Dante Sica, a consultant and former production minister, expressed concerns about the exchange market, stating, “The market did not expect these numbers from Milei. I think the government will have to be very attentive to the exchange market; it will surely be a week with a lot of tension.”

Historical Economic Challenges

Argentina’s markets have been unstable for a long time due to years of economic crises. A similar shock result in the 2019 primary elections led to a crash in bonds and the currency, which have since remained in distressed territory. The government’s efforts to lift capital controls have been unsuccessful, further complicating the economic situation.

Uncertainty and Market Confidence

Milei’s victory introduces an additional unknown factor that could impact market confidence. Despite his strong showing, he still faces a challenging battle in October’s general elections and a likely run-off in November. This will test his ability to win over more voters and potentially mitigate concerns among investors.

Goldman Sachs highlighted Milei’s support for “radical policy proposals,” including dollarization and significant spending cuts, which adds to the uncertainty given his lack of an established political machine.

Upcoming Election Dynamics

In October, Milei will compete against former security minister Patricia Bullrich, who secured the main conservative Together for Change nomination, and Peronist coalition candidate Economy Minister Sergio Massa. A candidate needs to achieve 45% of the vote or 40% with a 10-point lead over the second-place candidate to win outright. However, if no candidate meets these criteria, a head-to-head vote between the top two candidates will be held in November.

Conclusion

The unexpected primary election win by Javier Milei has created a more uncertain scenario than initially anticipated. Ricardo Delgado, director of the Argentine economics consultancy Analytica, summed up the situation, stating, “What we are left with is a much more uncertain scenario than the one we expected.” As Argentina’s markets navigate this new political landscape, investors will closely monitor the outcomes of the upcoming general elections in October and potential run-offs in November.