Argentine Primary Points to Run-Off to Elect Next President

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Argentina’s ruling party candidate Daniel Scioli won primary elections by a comfortable margin Sunday, while falling short of the support needed to win in a first round. Bonds rallied.

Scioli, from the ruling Victory Front alliance, won 38.5 percent of votes with 97 percent of ballots counted in preliminary results. An opposition alliance headed by Mauricio Macri received 30 percent support. Scioli needs 45 percent or more than 40 percent with a margin of victory of 10 percentage points to avoid a run-off on Nov. 22.

“It looks probable that we will have a second round after the October election,” said Jimena Blanco, senior Latin America analyst at Verisk Maplecroft in London. A first round win for Scioli isn’t “impossible, but he would have to get to 40 percent and we would have to assume that Macri doesn’t increase his vote either.”

Macri has pledged to change policies implemented by President Cristina Fernandez de Kirchner that fueled inflation and a widening budget deficit, while cutting poverty rates earlier in her two terms. Scioli has vowed to continue social spending and make some policy changes to attract investment. Both candidates have signaled they want to end Argentina’s near pariah status in financial markets following defaults last year and in 2001.

Markets welcomed the results. The average yield spread over Treasuries fell 0.19 percentage point to 5.73 points, according to JPMorgan Chase & Co. data. Bonds due 2033 rose 1.2 cent on the dollar to 100.7 cents at 12:13 p.m. in Buenos Aires.

‘Decisive Result’

“These results makes clear there will be a second round and polls show Macri’s chances are higher there,” said Jorge Piedrahita, chief executive officer of Torino Capital in New York.

President Fernandez didn’t attend Scioli’s post primary rally, where he thanked her and her predecessor, late husband Nestor Kirchner, for paving the way for his presidential bid.

“This is a decisive result,” Scioli said in a speech to supporters. “Look at it how you will, the only truth is we have an important lead over our adversaries.”

Macri, a 56-year-old, two-time mayor of the capital, has vowed to resolve an outstanding creditor dispute with hedge funds that sued in U.S. courts and remove currency controls while keeping nationalized companies under state control.

“An alternative has been consolidated,” Macri told supporters. “We know how to return Argentina to growth and how to end poverty.”

Massa Support

Massa, a former cabinet chief under Fernandez who formed his own dissident Peronist movement, received 20.7 percent support for his coalition with Cordoba governor Jose Manuel De la Sota. Massa called for dialog with the rest of the opposition. In a note to clients, analysts at financial services company Raymond James interpreted that as a signal he will support Macri in the event of a run-off vote.

The next government will be sworn in on Dec. 10.

Opinion polls had forecast an average seven percentage point lead for Scioli over the Cambiemos alliance.

The government’s benchmark bonds have returned 16 percent in the past year on speculation Fernandez’s successor will unwind capital controls, subsidies and tackle inflation. The Merval stock index has gained 21 percent this year.

Still, in recent months, Scioli has aligned himself more closely with Fernandez, fueling concern he may delay economic changes investors are expecting.

The country is in default, the budget deficit is widening, inflation is running as high as 28 percent and the nation faces a $6.3 billion debt payment in October with limited financing options beyond reserves. The black market exchange rate has tumbled 10 percent in the past month to 14.9 pesos per dollar compared with an official rate of 9.2.

“Nothing is decided yet,” said Sebastian Vargas, a strategist at Barclays Plc. “The polarization in this election was less than expected and that means anything can happen in October.”