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Marijke Zewuster, head of Emerging Markets at ABN AMRO, points out that the IMF deal secured last year by Argentina after a spell of currency unrest has taken a toll on President Macri’s popularity.

Key Quotes

“The enforced austerity measures, combined with extreme monetary tightening, pushed the economy back into recession and Macri now appears to be paying the price. After dropping sharply in recent months over concerns about the presidential elections in October, the Argentine currency went into free-fall in the wake of the primary elections.”

“Fear gripped the markets as news broke that opposition candidate Alberto Fernandez and his vice-president and ex-president Cristina Fernandez had won no less than 47% of the votes against a meagre 32% for incumbent president Macri.”

“A similar result in the real elections on 27 October would make a second round redundant. If Fernandez wins, consumer and producer confidence will probably be dealt a further blow, with negative knock-on effects for the growth outlook for 2020. However, regardless of who actually becomes president, the country’s problems have now reached the point where the IMF package may no longer be sufficient and the chances of achieving the agreed budget targets look increasingly remote.”

“As the currency continues to slide, the country is increasingly struggling to service its massive foreign debt. This increased probability of a sovereign default resulted in a recent downgrade of Fitch from B to CCC and of S&P from B to B-. Although this is not yet our baseline scenario, the weakening currency is for sure severely exacerbating the risk of renewed debt repayment problems.”