Argentina - Economic Briefing May 2003

Peronists Win First Round of Presidential Elections

Former president Carlos Menem won the first round of voting for the presidency, a notch ahead of Néstor Kirchner. Both candidates belong to the Peronist party and do not differ significantly in their economic policy agenda to bring Argentina back on a recovery path. Kirchner is the clear favourite in current opinion polls and if elected will face the difficult task of restarting negotiations with the International Monetary Fund (IMF), raising public service tariffs, renegotiating public debt, repairing the ailing financial system and reforming the tax system.

Peronists go to second round of presidential elections
The two-time president and member of the Peronist Party (Peronistas or officially PJ, Partido Justicialista), Carlos Menem won the first round of the presidential elections on 27 April with 24.4% of the vote. Menem was followed closely by Néstor Kirchner who garnered 22.0% of the vote. Following a surprising rally in the final weeks before the election, independent candidate Ricardo López Murphy, the former Economy Minister, candidate of the Movimiento Federal Recrear and investor favourite, received 16.3% of the vote.

Current polls indicate that Kirchner, who is also from the PJ and the current governor of Santa Cruz province, is the clear favourite to win the second round on 18 May. Kirchner has received the endorsement of fourth place candidate Elisa ‘Lilita’ Carrió from the left-wing political party Argentines for a Republic of Equals (ARI, Argentina por una República de Igualitaria), who received 14.1% of the vote. López Murphy has not endorsed either candidate outright but his supporters are likely to split between those who favour the economic orthodoxy of Menem and those who prefer a candidate untainted by corruption allegations. Former president and ex-governor of the province of San Luis and also a PJ first round candidate, Adolfo Rodríguez Saá, who came in fifth with 14.1%, has not committed to either candidate, even though he has an offer from Menem for a cabinet position. Kirchner is anticipated to win an overwhelming victory over Menem, taking 61.9% of the vote over Menem’s 23.9%. The balance of 14.2% represents undecided, blank votes and abstentions. Strangely Menem appears to have lost the support he obtained in the first round. Polling firms suggests that the ex-president could reach the first round result if undecided voters migrate back to his camp.

The new government is unlikely to undertake major changes to the current economic policy. The key priorities on the economic front for the incoming administration will be kick-starting negotiations with the International Monetary Fund (IMF), hiking public service tariffs, restructuring public debt, sanitizing the battered financial system and reforming the tax system. Kirchner has promised to keep the current Economy Minister, Roberto Lavagna. Menem’s candidate is Carlos Melconian. Both candidates are supportive of maintaining the current float of the peso but Lavagna clearly favours a weaker currency to spur the external sector, while Menem’s exchange rate policy is likely to target a stronger peso. Furthermore, Melconian is a strong proponent of the need to contain public spending, which contrasts with Lavagna’s desire to balance strict discipline with the overall objective of recovering economic activity. In terms of external debt renegotiations, Kirchner’s candidate favours not only a reduction in interest rates but also in principal to reduce Argentina’s overall debt servicing burden. Melconian, in turn, advocates lowering interest rates but honouring existing principal payments, while extending the maturity on external debt. Finally, both candidates espouse the need to compensate domestic financial institutions for losses incurred by the economic crisis but Lavagna prefers leaving the decision about the necessary measures to adopt in the hands of the legislature.