On 4 January, moderate Peronist party Alternativa Federal launched its campaign for the 27 October presidential election, with candidates to be decided following the 11 August primaries.

• Most current polls show President Mauricio Macri and former president Cristina Fernández de Kirchner very tight in the polls, with Macri having a slight edge in a potential run-off. Alternativa Federal has the potential to become a strong contender, as 40% of the electorate want a third option.
• If Macri is re-elected he will pursue the agenda he failed to implement during this term, such as labour reform and tax cuts; a new Kirchnerist government would increase state involvement in the economy.
• The chances of the moderate Peronists, who are likely to seek to attract investment if they come to power, will depend on their capacity to form alliances with other factions.

On 4 February 2019, the moderate faction of Argentina's opposition Peronist Justicialist Party (Partido Justicialista: PJ) launched its campaign for the 27 October presidential election under the banner of Federal Alternative (Alternativa Federal: AF). During a summit in Mar del Plata, key AF figures - Senator Miguel Ángel Pichetto, Córdoba governor Juan Schiaretti, and the leader of the Renewal Front (Frente Renovador: FR) Sergio Massa - called for a broad Peronist alliance, while rejecting an electoral deal with former president Cristina Fernández de Kirchner (2007-15). Likely presidential candidates from this block are Pichetto, Massa, Salta governor Juan Manuel Urtubey, and former economy minister Roberto Lavagna (2002-05).

AF will seek the vote of the 40% of the electorate who, according to polls, do not want either a second term of President Mauricio Macri from the Cambiemos ('Let's Change') coalition, nor a return of Fernández from the Kirchnerist faction of Peronism, Citizens Unity (Unidad Ciudadana: UC), who has yet to confirm she will run (lists close on 22 June). Of all the potential candidates, only Lavagna has higher approval than rejection rates (52% according to a January 2019 poll by D'Alessio and Berensztein). Should he decide to run he is likely to campaign on the solid performance of the Argentine economy during his tenure: 8.9% GDP growth in 2005, inflation at 9.6%, and fiscal and current account surpluses. Urtubey and Pichetto, who remain relatively unknown to the wider population, have generally been supportive of Macri's policies, including the 2019 budget that included austerity measures in the framework of a deal with the IMF (see Argentina: 29 October 2018: Argentina's Lower Chamber Budget approval facilitates government program execution, improving governability over coming year). Massa, on the other hand, has been more vocal against the government, including rejecting the 2019 budget and calling for renegotiation of the IMF deal. However, he has weakened politically since losing his bid for the Senate in 2017, and his approval rating has fallen from 18% in July 2018 to 9% in January 2019.

Macri and Fernández still tied in polls

A candidate from the AF would enter a highly polarized scenario, up until now dominated by Macri and Fernández. Most polls put them in a virtual tie, with stable support bases of approximately 30% each. However, Fernández has a lower ceiling than Macri, as her rejection rate (those who would never vote for her) is of approximately 70%, compared to 60% for Macri. Macri also likely has more potential to expand his support base, partly because of the 20% undecided voters, who mostly voted either for Macri or Massa in the 2015 election. With moderate Peronists still polling low (below two digits), the chances of a Macri-Fernández run-off on 24 November is still the most likely scenario, with Macri showing a slight edge over Fernández in most polls.

However, Macri's popularity has plunged since the economic crisis started in May 2018 with a sharp depreciation of the peso, economic recession, and inflation above 40%. His positive image dropped from 47% in April 2018 to 37% in January 2019, according to the same poll. In that same period, Fernández's positive image increased from 29% to 35%.

Outlook and implications

With four months to go before the list closes, and primaries taking place on 11 August, the electoral scenario remains open. During the coming months, Macri is likely to prioritize public security, one of the electorate's main concerns, in order to divert attention from the economy, particularly as security minister Patricia Bullrich has become the most popular cabinet member and a likely vice-presidential candidate following a successful G20 Summit held in Buenos Aires in December. Provided there is not another peso run or destabilizing anti-government unrest (there were 16 protests per day on average in 2018 in Argentina), Macri's support is unlikely to decline much further. Fernández is also likely to maintain her loyal support base, despite facing prosecution over corruption in public works during her terms (she denies any wrongdoing).

Considering the high number of undecided and people who want a "third option", the AF has the potential to become a strong contender, increasing the chances of policy change after the election. If it does get to power, it is likely to keep Argentina's economy open to international markets, although reducing the level of debt and seeking to attract private investment, while maintaining social programs and promoting institutional reform. Urtubey, for example, has advocated changing the presidential system for a semi-parliamentarian one, in order to reduce the power of the president. Urtubey, Pichetto, and Lavagna are less likely than Massa to seek a major renegotiation of the IMF deal, although some adjustments are likely.

If Macri is re-elected, he is likely to pursue the pro-business agenda he failed to implement during his first term, such as a labor reform that increases flexibility of contracts, corporate tax cuts approved under a 2017 reform, and the removal of export taxes ("retenciones"), measures he approved but had to backtrack on in his effort of reducing the fiscal deficit in the framework of the IMF deal. A Kirchnerist government, on the other hand, would be more prone to reinstate some capital and currency controls, and increase state involvement in the economy, as in their previous time in office.

Further Peronist provincial governors announcing support for Fernández instead of AF -such as Tucumán governor Juan Manzur did - will indicate a decreased likelihood of AF winning the elections. Any signs of economic recovery, such as lower inflation, job creation and economic growth, will indicate Macri's increased chances of being re-elected.

Posted 06 February 2019 by Carla Selman, Principal Research Analyst, Country Risk, S&P Global Market Intelligence