Argentina’s Macri Must Be More Aggressive to Win Vote

Argentine presidential candidate Mauricio Macri needs to be more aggressive in his criticism if he wants to close the gap on the government’s candidate, political analyst Rosendo Fraga said at a Bloomberg event in Buenos Aires.

Daniel Scioli of the ruling Victory Front alliance has 37 percent support ahead of the first round vote scheduled for Oct. 25 compared with 32 percent for Macri, said Mariel Fornoni, director of polling firm Management & Fit. Given a history of voters flocking to the front-runner, if Scioli garners 40 percent in Aug. 9 primaries, he could obtain a boost to take the required 45 percent 2 1/2 months later, Fraga said.

“Macri needs to be more aggressive and add more content to his campaign by saying what will happen if the government retains power,” Fraga said at Bloomberg’s Economic and Political Perspectives Summit at the Malba museum. “You’ve got other candidates who have said it could cause a third default.”

While Sergio Massa is trailing Scioli and Macri in polls to succeed President Cristina Fernandez de Kirchner, it’s still early to say exactly how his votes would be divided in a potential second round in November, Fornoni of M&F said. Recent polling data shows that so far 44 percent of Massa supporters would vote for Macri while 42 percent would support Scioli, she said.

“Looking at what will happen in four months or in November now in a country like Argentina is an eternity,” Fornoni said.

Exchange Rates

While corruption cases against President Fernandez and attempts to increase government control over the judicial system haven’t swayed voter intention significantly so far, recent instability in the currency could eat into Scioli’s lead, Sergio Berensztein, director of political consultancy Berensztein said.

The black market peso fell to the weakest since November a week ago.

The next government to be sworn in on Dec. 10 would be able to lift currency controls immediately by creating confidence among Argentines and promoting investment from abroad, Federico Sturzenegger, a lawmaker and economist who works with Macri said at the event

“If you take a sinuous, confusing path, you don’t generate the confidence shock that you need,” Sturzenegger said. “The signals have to be strong, for example, there shouldn’t be much delay in lifting currency controls.”

Lock-Law

A solution to the nation’s defaults and legal battles with holdout creditors could be resolved by repealing the so-called lock-law, which prohibits the government from re-opening the 2005 and 2010 debt swaps. It could then negotiate with the portion of holdouts that have rulings in their favor in U.S. courts, instead of trying to reach a solution with 100 percent of defaulted bondholders, Sturzenegger said.

Argentina can reach a different deal with the rest of the holdouts after the injunction that’s barring payments is lifted, he said.

Massa adviser, Marco Lavagna, said all holdout creditors should be dealt with together at the same table, and called for a more gradual approach, calling for example to lift currency controls in the first 100 days

“The next president will have to have a clear agenda and economic teams to gradually dismantle each one of Argentina’s problems, starting from dollar scarcity and lack of confidence,” he said.

Investor Optimism

Regardless of who wins the elections, economic policy changes to correct a fiscal deficit, promote investment and dismantle controls will be implemented sooner rather than later, Fernando Jasnis, a portfolio manager at Explorador Capital said at the event.

“Argentina has awakened huge interest from international investors who are ignoring the day-to-day bumps and see it as a long term play where the change of cycle is a consensus,” Jasnis said.

The financial industry in Argentina along with utility companies are some of the best industries to invest ahead of the regime change, said Andres Azicri, managing director at ACGM, a New York-based investment bank.

“The financial sector has enormous potential because of the low penetration in the country and because it will be a subsidiary of the macro improvements,” Azicri said. “Utility companies will benefit from changes that will have to be made to the regulatory framework.”

Assets tied to the official dollar rate, such as dollar-linked bonds, are also good investment opportunities as rates are expected to converge after elections, Azicri said.

A reflection of investor optimism ahead of elections can be found in rallies by utility companies in the bond and stock markets like Edenor which aren’t justified by any solid fundamentals or policy changes, Daniela Cuan, a corporate rating analyst at Moody’s said.

“There are no fundamentals that explain the performance of utility companies in the market; all of them are operating at a loss,” Cuan said. “It’s all based on expectations.”

(Corrects description of firm in 16th paragraph.)
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