Political Readings
The results of last month’s Mandatory, Simultaneous and Open Primaries (PASO in Spanish) largely ratified the previous electoral polls. That is, they suggested the possible victory of the governing party, Frente para la Victoria (FpV), in October’s presidential elections, but not one strong enough to empower Daniel Scioli in the first round. Therefore, a runoff in November remains the baseline scenario, with a somewhat open outcome despite the current bias in favor of the official candidate.
While FpV’s 8.3% lead over Alianza Cambiemos (AC is the main opposition alliance) is not small, Scioli failed to achieve any of the conditions to achieve a possible first-round victory in October. That is, not only did he fail to reach the 45% hurdle (which was admittedly quite unlikely), he neither achieved the 40% level nor a difference of more than 10 pp with the second place candidate.
The difficulty in anticipating the outcome of the presidential race stems from forecasting the behavior of voters that chose in favor of third parties in the primaries, in particular the anti-K Peronists. That is, those who voted for Massa, De la Sota and Rodriguez Saá, and represented 22.7% of the total votes in the PASO.
We believe that a political agreement between Macri and Scioli is unlikely to take place before the general elections. Massa seems to have his mind set on running for the presidency, as reflected in his recent statements. And this might even be for Macri’s convenience as it lowers the risk of Scioli’s capturing those votes in the first round. Yet some sort of expression of support could be possible ahead of a second round vote.
In addition to political agreements, economic swings from now into October will also play a key role in the elections. Among the many indicators that voters will follow is the FX rate as an important determinant of real wages.
Most likely, the government will try to keep these variables (FX, prices, real wages) as controlled as possible until the elections (if possible even until January), in an effort to avoid spillovers from the global dollar-strengthening into the election. But market pressures are likely to continue to be felt through the informal FX rate.
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