Argentina’s Milei faced with ‘titanic’ task to win runoff against strengthened ruling party

News Analysis 23 October

Argentina’s Milei faced with ‘titanic’ task to win runoff against strengthened ruling party

by Clara Agustoni and Santiago del Carril

Argentina libertarian presidential candidate Javier Milei will have to work on building political alliances to achieve the "titanic" task of winning the runoff after the strong results obtained by ruling party candidate Sergio Massa on 22 October, according to two sources close to the matter, a political analyst and three buyside sources.

Against the predictions of most polls, Massa, the economics minister and candidate of the ruling coalition Union por la Patria (UxP), obtained 36.68% of the votes in the first round, improving by 7.8 percentage points relative to the open primaries (PASO) held on 13 August. Libertarian Javier Milei, of the La Libertad Avanza (LLA) party, came in second place, garnering 29.98% of support, similar to what he obtained in the PASO. 

Patricia Bullrich, a candidate of the leading opposing coalition, Juntos por el Cambio (JxC), gathered 23.83% of votes, down from the 28.2% that the party got in the PASO. Additionally, candidate Juan Schiaretti garnered 6.78% of votes, while left wing candidate Myiriam Bregman received 2.7%, according to the latest results published by Argentina’s Electoral Directorate.

“Bregman’s votes will most likely go to Massa, so yesterday’s results leave the UxP candidate in a very strong position, having to gather only 11 additional percentage points to win,” said the first source close, who works closely with Massa’s campaign team. “Considering Bullrich’s and Schiaretti’s votes altogether total 31%, it means Massa has to convince only one out of three of those voters to win the runoff,” said the source.

“Sergio Massa was able to reach the maximum number of votes we projected he could obtain, while Milei wasn’t able to capture much more votes that what he won last time,” said political analyst Esteban Pastoriza, from Clivaje Consultores. “However, Milei continues to be a threat to Massa because now he will be the main opposition candidate, with Bullrich out,” he said.

“Bullrich’s voters seek change and not continuity," the second source close said. "They are first of all, ‘anti-kirchneristas’ [referring to UxP's leader, former president Cristina Kirchner], and for that reason they are most likely to opt for Milei than for Massa in the second round. However, Massa’s surprisingly successful performance is pushing La Libertad Avanza to start talks with JxC’s leadership quickly, and potentially with Schiaretti too, to seek alliances."

A JxC breakup is a risk for Milei

There’s a risk for Milei and that would be a breakup of Juntos por el Cambio, said the second source close. Juntos is a coalition formed by PRO, a center-right party led by former president Mauricio Macri, and the Union Civica Radical (UCR), a historic party leaning more to the center-left, currently led by Jujuy governor Gerardo Morales, as reported.

“I would find it very hard to see UCR members voting in favor of Milei in the second-round elections,” considering he “hit hard” on the radicals during the first round campaign, Pastoriza said. “It is much more likely that JxC coalition breaks up than maintaining itself stable,” he said.

“Massa is going to try to get UCR votes, knowing that Milei will have difficulty capturing them, said an Argentina-based buyside source.  “Milei is going to try to attract the more core faction of the PRO.”

In order to get the entire Juntos coalition on board, “he will have to make important concessions, such as dropping his dollarization idea, and may even have to offer a role in the next government to the coalition leaders”, said the first source close.

A coalition partnership will also be necessary for Milei if he is elected president, considering he would be “the leader with the least representation in Congress in history,” Argentine portfolio manager PPI wrote in a report.

La Libertad Avanza “significantly enhanced its representation in Congress, as it gained eight seats in the Senate and 34 in the Chamber of Deputies, PPI wrote. Accordingly, Milei’s party will have 37 deputies and eight senators as of December 2023."

Union por la Patria, on the other hand, will “comfortably” have the first minority in Congress starting 10 December, with a larger difference with the second minority JxC, said PPI. The ruling party will have 108 seats in the Lower Chamber, versus 118 today, and 34 seats in the Senate, versus 35 today. Juntos por el Cambio will have a weaker position with 93 seats in the Lower Chamber, versus 117 today,  and 24 in the Senate, versus 33 today, PPI wrote.

Markets react ‘impulsively’  

Argentine sovereign bonds reacted negatively to the election results, with prices down 7% on average, said a second Argentina-based buyside source. “Investors have an anti-kirchnerist’ bias and in this sense, Massa’s victory was a negative surprise for the market,” said the source.

Argentina's 2030 bonds last traded at 26 today, down from 28.7 on 20 October, according to MarketAxess. The 2035 notes last traded at 23.9, down from 26 on Friday.

“The Argentine market is small, it is very volatile, and it is responding impulsively to the news,” said the first Argentina-based buyside source.  “I think going forward Massa is a good candidate, and he is very pragmatic. I view it as positive for the market,” he said.

The ruling party’s victory means a continuity of status quo and of certain measures such as the FX restrictions, said a third buyside source. “Under this status quo Argentina is not growing,” the source said.

“The belief that Massa will just be a continuation of the Kirchners is wrong,” said the first buyside source. “I think he will be the new leader of the Peronist party. Massa will be able to create a government with a lot of support and territory. I think there would be more risk with Milei,” he said.

It would be “titanic” for Milei to win the runoff, according to the PPI report. “There’s a significant difference between both candidates and Milei’s extremist positions limit his growth,” it said. However, “there’s a recent precedent” of something like that happening, as Mauricio Macri was able to win the runoff against Daniel Scioli in 2015 despite coming in second place in the first round,” it said.

The presidential runoff is scheduled for 19 November. A debate between the two candidates is scheduled for 12 November.

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