Argentina gets glad eye from investors as election looms

If there was ever a question about what the investment community thinks of Argentina's president Cristina Kirchner, recent market activity is clearing up any doubts.

The economic slowdown in China is hitting South America hard. Slackening Asian demand for the resource-rich continent's commodities has provoked a wave of selling across the region, hitting stock markets and currencies.

But one country is bucking the trend – financial pariah Argentina.

Even though its economy has stalled, hit by lower prices for its soy exports, plagued by high inflation, gaping deficits and dwindling foreign reserves, the Buenos Aires stock exchange has staged an impressive rally this year while foreign investors are snapping up the country's bonds despite two sovereign defaults in just 13 years which keep it shut out of global capital markets.

End of an era

The reason? On December 10th, Kirchner, whose populist policies are blamed by many for her country’s poorly economy, will be quitting the Casa Rosada. “In this election the question of who wins is secondary to the fact that it marks the end of the Kirchner era,” says Dr

Samuel Amaral

, a historian of the Peronist movement.

Investors are betting that whoever emerges triumphant from next month’s poll, or a possible run-off in November, will clean up the public finances weakened by Kirchner’s profligate spending and reinsert Argentina into the global economy it has been estranged from since its 2001 debt default.

Running second in the polls, the mayor of Buenos Aires city, Mauricio Macri, aims to become the first right-wing democratically elected president in Argentina's history. He has sharply criticised Kirchner's economic policies, which have polarised Argentina during her eight years in power.

But investors are also warming to frontrunner Daniel Scioli, the governor of Buenos Aires province, despite the fact that he is a Peronist like Kirchner and has her backing.

"Henry Kissinger was once asked what presidents want and he replied 'a second term'. If either Scioli or Macri wants a second term they will need to make changes to the economy because without them there will be no growth and they will not be re-elected," says Alberto Bernal, an economist with Latin American investment house Bulltick. "Both men understand this. They know what they have to do."

The most obvious signal of a change in direction would be a settlement with bondholders who rejected a debt restructuring deal in 2005 following the 2001 default. The dispute keeps Argentina from tapping capital markets and its resolution would be a signal that Argentina is reopening for business.

“If the country fixes its external accounts so much money could suddenly flood in it is not even funny,” says Bernal.

Though Scioli has been careful not to disrespect the president’s economic legacy, on the campaign trail his ideological commitment to her statist populism is doubted. “Scioli and Macri broadly agree on foreign and economic policy and are very different to President Kirchner in their views on the role of the state in the economy, for example,” says political analyst Sergio Berensztein. “As incumbent Scioli would be different ideologically to Cristina and in fact more like Macri.”

Kirchner’s backing of Scioli only followed her failure to find an electorally competitive candidate among her own inner circle. The two have had a difficult relationship ever since Scioli served her husband and predecessor Néstor as vice-president.

Recently, Kirchner has packed her supporters into the top echelons of the country’s institutions in a bid to preserve her influence after she leaves power. But analysts warn history is against her. “She will no longer be president and in Argentina the presidency is very strong. It is going to be difficult for her ,” says Berensztein.