As Argentina election nears, are the economic stars aligning for Macri?
By Eliana Raszewski and Adam Jourdan
BUENOS AIRES (Reuters) - Argentine President Mauricio Macri is making an election race comeback, bolstered by a stronger peso and glimmers of economic revival as the South American nation looks to escape from a biting recession.
That had looked unlikely a few months ago with the peso at record lows, bonds yields spiking and inflation out of control, hurting the centre-right leader ahead of October elections seen as a referendum on his austerity economics.
Since then, a decision by ex-president Cristina Fernandez de Kirchner not to run has calmed investor fears about a return to unchecked populism, while a dovish turn by the U.S. Federal Reserve has supported emerging market currencies like the peso.
Macri's tight monetary policy - enforced as part of a major financing deal with the International Monetary Fund last year - has also finally helped to get inflation in check.
The effect has been dramatic. Argentina's currency has strengthened around 10% against the dollar since its April nadir, the equities market is at a record high, bond yields have tumbled and interest rates are slowly retreating.
Recent polls now show Macri gaining strength and a handful have him even edging out Peronist Alberto Fernandez, now seen as his main rival with Kirchner as his running mate, in a possible election run-off after the first round on Oct. 27.
"The last two months have been very good news for the government," said Thomaz Favaro, regional director at consultancy Control Risks. "It's now a much more benign situation for Macri."
The latest data from a closely-watched index by the Torcuato Di Tella University showed consumer confidence, which reached a more than 15-year low earlier in 2019, spiked in June to its highest level in more than a year.
Daniel Elsztain, director de IRSA Commercial Properties which operates the Argentina's biggest shopping malls, said exchange rate stability and government stimulus measures such low- or zero-interest credit had noticeably bolstered shoppers.
"The change we're seeing in our numbers at the end of the day is really big," he told Reuters.
The country's benchmark interest rate, set by daily auctions of short-term "Leliq" notes, has also been edging down since May from a high of nearly 75% to under 60% this month for the first time since March.
High interest rates have helped prop up the peso by encouraging investments in the currency, but strangled economic growth and companies' ability to borrow.
STOCKS UP, YIELDS DOWN
Meanwhile, the country's S&P Merval Index is near a record high level after a 50% surge since late April driven by the calm returning to foreign exchange markets.
Yields on Argentine sovereign bonds, which spiked earlier in the year as investors got spooked by rising political risk, have dipped.
A risk index of Argentina from JPMorgan has also come down sharply since the start of June, currently around 780 points versus more than 1,000 points at the start of last month.
Inflation, one of the top issues for voters, has started to slow down since a March peak. It climbed almost 50% last year and is still running at an annual rate of more than 57%.
Polls agree the election will be a close-run affair that will likely go to a second round in November.
A poll from consultancy Management & Fit suggested Macri would edge out Fernandez in a run-off scenario. Other polls, however, give Fernandez an edge head-to-head.
"It's still very up in the air how the election will play out," Control Risks' Favaro said. "Fernandez appears to be edging the first round but not enough to reach a winning threshold. It looks like a virtual tie in a second-round run-off."
(Reporting by Eliana Raszewski and Adam Jourdan; Editing by Sonya Hepinstall)