In the Argentina primary election Alberto Fernández and his running mate, ex-president Christina Kirchner, out-performed President Mauricio Macri by 15 points. Macri secured just 32 percent of the primary vote, while Fernández/Kirchner received 47 percent, making them the favorites to win the presidency in the October elections.
The market reacted to the leftist surge by crashing, flaming real fears of a possible default on the country’s IMF loans. This sent the peso to its lowest level in nearly two decades, causing a massive sell-off in the country’s stock market, down 48% in one single day. It was the second-biggest one-day rout on any stock exchange going back to 1950 (Sri Lanka’s bourse tumbled more than 60% in June 1989 as the nation was engulfed in a civil war).
The Argentina peso closed down 15.27% at 53.5 pesos per United States dollar– that is after plunging more than 30% to a record low of 65 to a dollar in intraday trading. The obvious takeaway from the primary election: “The No. 1 thing to learn is that Argentines do not want austerity.” The problem with that sentiment is that with both the peso and stock market crashing, the free market is already providing the country with severe austerity, even though the politicians are saying it is not needed.
Fernandez/Kirchner will undo the economic reforms put into place by Macri’s administration, and the big issue is the measures related to the International Monetary Fund’s bailout package. “That is what will worry markets most,” claimed Abhijit Surya, for the Economist Intelligence Unit. “I don’t think there’s a way to sugar-coat this. We’re likely to see panicked market reaction.”
Argentina is a small country economically but the world does not want to see another market-friendly government fall to left populism, and there is general concern about market contagion. The simple truth is that voters trying to tell politicians that they don’t want austerity just got one of the world’s biggest doses of austerity– all in a single day.