Argentina’s President Cristina Fernandez de Kirchner is recuperating after brain surgery days before a decisive mid-term legislative election that many believe will not go in her favor and as such, will change the course of politics and policy in Argentina going forward.
That change, believe investors including Diego Ferro, portfolio manager at Greylock Capital Management, would be a welcome one for Argentina, both domestically and internationally. Because even though the Argentine economy has been growing decently and is set for a 3.5% GDP growth this year, Fernandez de Kirchner’s numerous interventionist policies through the years have angered Argentina’s private sector and have incurred the wrath of the international financial community—to the point that Argentina has been more or less marginalized from the capital markets.
Fernandez de Kirchner, who succeeded her husband, Nestor Kirchner, as president in 2007, has imposed controls on imports and on foreign exchange and the Argentine peso is greatly overvalued. She also took the decision to nationalize YPF, the country’s leading energy company—a move that angered Argentina’s trade partners and international investors—by expropriating Spain’s stake in it, and she nationalized both Argentina’s private pension system and its main airline.
Also unresolved is the $81 billion in bond debt that Argentina defaulted on in 2001, which was has been through two restructurings. Although there is talk that Fernandez de Kirchner would seek a third term in office, this would only be possible through a constitutional change and for that, she needs to secure a two-thirds majority, which Ferro doesn’t believe is possible.
Furthermore, “the Kirchners have been running the country in a very personal way, and [Cristina Fernandez de Kirchner] neglected grooming someone who could be her successor, which would have helped her remain influential for the remainder of her presidency,” Ferro said.
With the likelihood of Fernandez de Kirchner losing her hold on Congress, the path is clearing for a shift in policy and a move away from “Kirchnerism,” enroute to the 2015 presidential elections.
“Most people likely to succeed Fernandez de Kirchner to the presidency have a center-right orientation, so the whole approach from here on is likely to be very market-friendly,” Ferro said. “People are feeling very optimistic because much of what’s happening to Argentina is self-inflicted and you would expect that to change as policy changes.”
A shift in policy is mandatory at this juncture because Argentina must rebuild and improve its relationships with international financial markets in order to secure the funds needed to sustain and boost economic growth, according to Sebastian Vargas, an economist who covers Argentina for Barclays Capital.