Argentinian markets in the spotlight after centre-left candidate wins

Buenos Aires — Argentina’s peso edged up on Monday and the local Merval stock index rallied after centre-left Alberto Fernandez clenched victory over incumbent Mauricio Macri in the presidential election and the central bank clamped down on dollar purchases.

The peso was 0.02% stronger in morning trade at 59.98 per dollar, traders said. However, Argentina’s black market peso split away, weakening 1.95% to 77 per dollar, a record low. Another often-cited price, known as a blue-chip swap, held stable at 81.5 pesos per dollar.

Argentina’s markets are in the spotlight after the Sunday vote, which handed an outright victory to the country’s Peronist opposition, who now face the daunting task of righting the country’s economy and stabilising markets.

Key to that will be the relationship with the IMF, which extended a $57bn line of credit to Argentina in 2018 but has been holding off on disbursing the latest tranche of funds.

“We look forward to engaging with [Alberto’s] administration to tackle Argentina’s economic challenges and promote inclusive and sustainable growth that benefits all Argentines,” Kristalina Georgieva, MD of the IMF, tweeted on Monday.

Fernandez had about 48% of the vote to Macri’s 40%, a wide enough margin to win outright but a far better result for conservative leader Macri than a landslide defeat in an August primary that sparked a market collapse.

In the early hours of Monday, Argentina’s central bank announced it would tighten a restriction on dollar purchasing to $200 per month for individuals, down from $10,000 a month, until December, when the new government will be in place.

“I know this measure, even though temporary, is very strict and affects many people. Its purpose is to preserve reserves during this transition period, until the new government defines its economic policies and the uncertainty dissipates,” central bank president Guido Sandleris said during a press conference before local markets opened.

The bank has spent about $22bn in its reserves to defend the peso since the August 11 primary, Sandleris said.

Argentine dollar bonds earlier fell as investors fretted about the consequences for the national economy and debt burden after Fernandez ousted business-friendly Macri.

The benchmark international 2028 dollar bond dropped to 38.80 cents on the dollar, its lowest level since the start of October, according to Refinitiv data.

“Argentina is heading towards a default and there will now be tricky negotiations with the IMF, which has huge skin in the game and is desperate to safeguard its resources, and bondholders,” said Gabriel Sterne, head of global macro research at Oxford Economics.

Other economists said the market impact could be cushioned by a stronger-than-expected showing by Macri.

Shinji Ishimaru, senior currency analyst at MUFG Bank, said the result showed voters had some understanding of the need for fiscal tightening. “I think that could help steer the new government’s policies towards the centre of the road.”

Investors are waiting for Fernandez and his vice-presidential running mate, populist former president Cristina Fernandez de Kirchner, to detail their plans for Latin America’s third-biggest economy and their stance with creditors and the IMF.

Alberto Fernandez and Macri met on Monday morning to discuss the political transition, a move that could help to calm markets.

Gabriel Torres, a senior sovereign analyst at Moody’s, said the country faces “substantial credit challenges”, including the need to restructure public debt and address fiscal imbalances with limited funding options.

Argentina's Merval stock index was up more than 6% in late morning but by lunch time was down 1.77%.

Reuters