Local bonds fell Monday morning in the wake of former president Cristina Fernández de Kirchner’s surprise move to run for vice-president, in this year’s election in an attempt to rally the opposition behind a less-divisive candidate.
Argentine bond spreads against US Treasuries rose 19 basis points to 962, double the average for Latin America, after Fernández de Kirchner, 66, stunned the country on Saturday with her early morning announcement, upending months of speculation that she’d run again for president.
The country’s five-year credit default swaps also rose 1.3 percent to 1,274 basis points, while the peso opened 1.1 percent weaker before paring losses.
Fernández de Kirchner’s running mate, Alberto Fernández, is a career politician with no experience on the national ballot. Still, he has broader appeal in Peronism, where Fernández de Kirchner’s polarising positions created divisions and the possibility of rival candidates.
The former president's move is also a push to convince voters that with Fernández heading the ticket, the pair would be more moderate leaders with a better chance of beating President Mauricio Macri, said Daniel Kerner, managing director for Latin America at Eurasia Group.
“If she can unify Peronism, or at least attract more Peronist leaders and maybe more Peronist voters, she’s closer to winning and to defeating Macri,” Kerner said in an interview.
It’s the latest twist in an election year that already has markets on edge. Investors fear that Fernández de Kirchner’s potential return to power would reverse Macri’s pro-business stance. Analysts argue that while the shock announcement may cause an initial negative market reaction, the prospects of not having the senator for Buenos Aires province as president would be a sign of more moderate policies.
Fernández de Kirchner’s move was stunning because she was already leading Macri by a razor-thin margin in presidential polls. In theory, she had a chance to win on her own.
To some, Fher decision to run as a vice-presidential candidate acknowledges the limits of her presidential bid. She faces multiple corruption cases, and top officials from her former government are behind bars on graft charges. Her second term, which finished in late 2015, was also marked by a default, high inflation and unpopular economic policies.
“I think the market is going to come to the conclusion that this is a bit of a sign of a weakness, that Cristina knew that her ceiling was very low and she was probably not going to win,” said Walter Stoeppelwerth, chief investment officer at Portfolio Personal Inversiones in Buenos Aires.
The first round of the presidential ballot takes place on October 27. To win outright, the top candidate must receive 45 percent of the vote or 40 percent with more than a 10 percentage-point difference over the second-place contender. If not, there’s a run-off vote on November 24. With several polls showing a dead heat between Macri and Fernández de Kirchner, analysts had thought the most likely scenario would be a runoff vote between the two.
Fernández, 60, could arguably appeal to more centrist voters than the former president. He served as Cabinet chief to late president Néstor Kirchner, who was president from 2003 to 2007.
He stayed on for Fernández de Kirchner’s first year in office but resigned in December 2008 over policy disagreements.
“His main advantage is his moderate speech: he is market-friendly and anti-default,” said political analyst Sergio Berensztein. “Alberto Fernández has a lot of political experience, but he lacks electoral experience.”
During Fernández de Kirchner’s second term, Fernández became a fierce critic. His videos and op-eds from years ago criticising her on everything from the economy to alleged corruption resurfaced Saturday with the announcement.
The top economic priorities for the next government should be the country’s debt, inflation, and the fiscal deficit, Fernández said in an interview with local newspaper Ámbito Financiero.
He also said that entering debt talks with private bondholders was seen as a more feasible scenario than doing so with the International Monetary Fund, and added that capital controls were not a "good solution" because they blocked dollar inflows.
The fact Fernández de Kirchner remains the most powerful person on the ticket opens the question of how much command an eventual Fernández presidency would have.
“It’s hard to believe Cristina would not be the main authority in a new government, which is why this a half-hearted attempt to unite Peronism,” said Benjamin Gedan, former South America director on the White House’s National Security Council under former US President Barack Obama’s administration.
Macri faces a tough decision because he banked on Fernández de Kirchner being the presidential candidate with Peronists divided. His top campaign strategist, Jaime Durán Barba, told Bloomberg in April that “the people who think Fernández de Kirchner is not going to be a candidate are crazy.”
“Now, united Peronists without Cristina as the candidate is a situation, in the current economic climate, that’s hard for Macri,” said Juan Cruz Díaz, director of the consulting firm Cefeidas Group in Buenos Aires.
There’s been some calls for Macri to and instead allow Governor of Buenos Aires Province María Eugenia Vidal, who has higher approval ratings, to run in his place. At a minimum, Fernández de Kirchner’s decision will force Macri to strengthen his own coalition, Cambiemos, and his PRO party's relationship with the UCR.