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Argentina's populist opposition primary win may put energy investment on hold

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Argentina's populist opposition primary win may put energy investment on hold


Vote a 'profound rejection of Macri'

Oil production grew under Macri, but not economy

Oil investors likely to wait for more details

Buenos Aires — Argentina's leading opposition coalition, a left-wing populist alliance that ruled the country from 2003-15, swept the national primaries Sunday, putting it in the running to win the October 27 general election and damp investment in the oil and natural gas sector.

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Frente de Todos, led by Alberto Fernandez, got nearly 48% of the votes in the primaries; while President Mauricio Macri's conservative coalition, Juntos por el Cambio, received 32%, according to data of the National Electoral Board.

The 16-percentage-point lead is far more than the three- to five-point difference many analysts and pollsters had forecast ahead of the vote that Fernandez and his running mate, former President Cristina Fernandez de Kirchner, would get in the primary election, which is considered a nationwide poll.

The difference came as a surprise to most analysts, with some calling it a knockout for Macri and an indicator Fernandez may very well win the presidency.

"This wasn't expected," said Carlos Germano, a political analyst at Germano y Asociados. He said it was the sour economy that, in the end, swayed the vote for Fernandez, 60, a chief of cabinet from 2003 to 2008.

"The refrigerator beat the television set," Germano told S&P Global Platts on Monday. "People voted to have food over entertainment."

That is to say, the vote was "a profound rejection of Macri" and his failure to restore the economy to growth, Germano added.

The economy fell into recession after the local currency collapsed in April 2018, losing more than 100% of its value against the dollar and more than doubling the inflation rate to nearly 56%. This has brought a surge in unemployment, poverty and business closures. The economy is now in its second year of recession and isn't expected to recover until next year, according to a survey of economists by the central bank.


Germano said energy companies will likely put any expansion decisions on hold, including in Vaca Muerta, the country's huge shale play driving oil and gas production growth. Big companies such as Chevron, ExxonMobil and Shell have been investing billions of dollars in the play, one of the world's largest.

Investors are going to wait to see what Fernandez says about his economic and energy policies before taking more decisions, Germano said.

Fernandez, of course, still has to win the general election, a vote that is likely to go to a November 24 runoff with Macri. But with nearly 48% of the votes in the primaries, analysts said Fernandez could get 43% in the first round and win in the runoff.

The contender, who has not said much in terms of his potential policies, is known as more of a moderate than Fernandez de Kirchner, who had been expected to seek for a third term but instead chose to run as a candidate for vice president, a tactic seen as appealing to a growing voter preference for centrism.

Even so, the oil sector may be concerned about a return of the capital, currency, pricing and trade controls that pushed many company to losses or lower profits under Fernandez de Kirchner, leading them to rein in investment or even to pull out of the country altogether.

Fernandez has suggested he wouldn't reinstate the capital controls, and has said boosting domestic consumption and exports would be priorities, as this would lead a revival of economic activity. However, in terms of reforms, Fernandez has said many would have to wait until the economy is back on track and inflation has been brought under control, a process that he said will take time.


The financial markets took the news poorly, with the peso losing 25% of its value and the local bluechip stock index tumbling 38% Monday.

Macri, in a Monday afternoon press conference, blamed the market crash on investor fears of a return of the populist politics of 2003-15 spearheaded by former President Fernandez de Kirchner.

"We must understand that the biggest problem we have in Argentina is that the Kirchnerist alternative has no credibility in the world," he said. "It does not have the necessary confidence so that people want to come and invest in the country."

Macri said his economic team is working on measures to stabilize the economy and financial markets. He said there are no plans for a shakeup in his cabinet.

Macri sought to rebuild voter and investor confidence, saying his coalition would seek to improve its chances in the general election so it can compete in a runoff against Fernandez.

"We are going to revert this election," he said of what he called "a bad" result for his coalition. He said he understands many of the votes for other parties were a "reprimand" of him because of the hard times as the economy contracts for a second year in a row. "This election is a message, and we have listened."


Oil companies may be wary. Under the populism of 2003-15, oil and gas production dwindled to near-record lows, hitting the country with shortages that couldn't even be met by a surge in imports. The imports drained the country of dollars and pushed it into economic stagnation and financial instability now hampering Macri's chances for re-election.

Macri removed most of the controls and state interventions, helping production to recover and put the country on track to become a net energy exporter in the near term. The Energy Secretariat has said oil and gas production could double to 1 million b/d and 260 million cu m/d, respectively, in 2023 from 2018, allowing exports to surge to 500,000 b/d and 80 million cu m/d, and continue growing.

But Macri failed to put the economy on track for sustainable growth, and that could haunt whoever wins the election, including the threat of a debt default, said Edward Glossop, an emerging markets economist at London-based Capital Economics, specializing in Latin America.

"We forecast a sovereign debt default over the next few years, even if Macri wins the election," Glossop said. "The main reason is that the debt dynamics are looking increasingly dire. Even if Macri wins, we think the peso has room to fall more [against the dollar], which will push up the foreign currency value of public debt."

-- Charles Newbery,

-- Edited by Jim Levesque,

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