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Macri’s Shock Setback in Argentina Deals Blow to Re-Election Bid

Patrick Gillespie, Jorgelina do Rosario and Carolina Millan
Macri’s Shock Setback in Argentina Deals Blow to Re-Election Bid

(Bloomberg) -- Argentina’s President Mauricio Macri unexpectedly lost a primary vote by a landslide, foreshadowing a defeat in October’s presidential election and a possible return to the policies of his predecessor, Cristina Kirchner.

Argentina’s international bonds and stocks tumbled in London and New York early trading after the vote, effectively a test of national sentiment before the two-round presidential ballot. The scale of Macri’s defeat took pollsters by surprise, yet it reflects widespread public dismay at the country’s direction amid recession, austerity and inflation running at more than 50%.

With some 99% of ballots counted, Alberto Fernandez, the main opposition candidate who has Kirchner as his running mate, took almost 48% of the vote to 32% for Macri. If that result were to be replicated in October, Fernandez would take the presidency without the need for a runoff.

The nation’s century bond due in 2117 collapsed, sending the yield up more than two percentage points to 11.9%, the highest since the notes were sold two years ago, according to data compiled by Bloomberg. Dollar bonds due in 2028 also plunged more than 18% in New York, while American depositary receipts from Argentine companies sank in early trading.

“This election is over,” said Lucas Romero, director of polling firm Synopsis. “There’s no way the government can overcome this.” Pollsters have long forecast that Macri would have trouble overcoming defeat by a margin of more than 7 percentage points.

The primaries were originally intended to whittle down candidates within each party ahead of the elections proper on Oct. 27. But because the parties each fielded a single ticket, the ballot ended up working as a broad measure of voter sentiment.

Macri conceded defeat on Sunday even before the release of official numbers, which were delayed by the slow counting of votes in the province of Buenos Aires. “We had a bad election,” he told a crowd of somber supporters in Argentina’s capital. “We’ll have to redouble our efforts.”

In an emergency meeting of his cabinet and other close aides late on Sunday, Macri ruled out any changes to the presidential team, La Nacion newspaper reported.

Investors now face the reality that voters are losing patience with the market-friendly policies adopted by Macri, and are prepared to take a gamble on a return of the type of interventionist measures that were common place under Kirchner. The former president nationalized pension funds, imposed currency controls and tampered with economic statistics during her time in office from 2007 to 2015.

Macri succeeded her with pledges to boost the economy and return Argentina to the international fold, but was instead forced to seek a record $56 billion bailout from the International Monetary Fund and raise interest rates to more than 70% following a currency crisis last year. While the economy started to show signs of slowly recovering from recession earlier this year, what progress there has been failed to convince voters to back Macri on Sunday.

Fernandez, 60, who has yet to lay out detailed economic policies, made a point of trying to allay investor fears in a speech after the release of official results.

“We were never crazy while in power,” he told supporters in Buenos Aires. “We always fix problems left by others.”

Currency Woes

Monday’s sell-off was exacerbated by the last-minute wave of optimism about Macri’s prospects that caused the Merval stock index to jump 6.7% on Friday.

Doubts about the future of the IMF deal under Fernandez may fuel a currency rout that is likely to put the central bank in a challenging situation. The bank has so far managed to stabilize the peso with a ultra-tight monetary policy and interventions in the peso futures market with the blessing of the IMF. The Argentine currency will start trading around 9 a.m. New York.

To win outright on Oct. 27, the top candidate must receive 45% of valid votes, or 40% of them with a 10 point difference from the second-placed contender. If neither scenario happens, there’s a runoff vote on Nov. 24.

Polls for weeks have shown Macri and Fernandez heading toward a runoff.

“It’s one in another line of elections globally where the pollsters had absolutely no clue,” said Walter Stoeppelwerth, chief investment officer at Portfolio Personal Inversiones, a broker in Buenos Aires. “Everybody I talk to is in shock.”

(Updates with market reaction from second paragraph)

--With assistance from Rodrigo Orihuela, Raymond Colitt, Hannah Benjamin, Tasos Vossos and Jonathan Gilbert.

To contact the reporters on this story: Patrick Gillespie in Buenos Aires at pgillespie29@bloomberg.net;Jorgelina do Rosario in Buenos Aires at jdorosario@bloomberg.net;Carolina Millan in Buenos Aires at cmillanronch@bloomberg.net

To contact the editors responsible for this story: Juan Pablo Spinetto at jspinetto@bloomberg.net, Walter Brandimarte, Alan Crawford

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