Why Argentina Shuddered at Prospect of Change at Top

Nothing was decided in Argentina’s primary election Aug. 11. It was only meant to provide a sign of voter sentiment ahead of the real vote Oct. 27. What, then, explains the economic earthquake and market free fall caused by the results? The poor showing by Mauricio Macri, Argentina’s president since 2015, was part of it, since he’s been seen as an economic reformer, albeit one with mixed results. But there’s another factor: The opposing ticket, the one on course for victory, gives some Argentines and investors a troubling sense of déjà vu.

Macri was soundly bested by opposition candidate Alberto Fernandez, a result that many now expect will be repeated Oct. 27. Pollsters had projected a small advantage for Fernandez. After Fernandez’s 16 percentage-point win, Argentina’s sovereign bonds and stocks plunged, and the Argentine peso fell as much as 32.6% the day after the vote. The market rout continued over subsequent weeks, with Argentine depositors withdrawing savings from dollar-denominated accounts. That led the government to announce it would postpone $7 billion of payments on short-term debt this year -- a move Standard & Poor’s briefly labeled a “selective default” -- and seek to extend maturities on $50 billion of longer-term obligations. On Sept. 1, Macri imposed capital controls in a blunt policy reversal aimed at containing the crisis.