POLITICAL CLIMATE REPORT

presidential bid presidential drop his will Massa that confirmed been has since It (CFK). Kirchner de Fernández f and Fernández of Alberto theticket front” backing opposition “the be joining would the FR that announce to Gioja Luis party José headofPJ the national day, The same coalition governing the current from within a vicepresident orrunning on theballot, Macri replacing any shake that weeks been had thepreceding in speculation unex highly was party, ofPRO Macri’s a loyalist Michetti, Gabriela replace Pichetto that The announcement elections year’s in this mate running presidential his vice will be Pichetto Ángel 11, June events on of turn a surprise In scenario. electoral to the clarity more has brought 22, respectively) June 12and June (on candidacies alliances and formalizing for deadlines of the The passage Electoral alliances take oversh down, slowed mobilization labor and activity congressional Meanwhile, calendar sam the At economy. weak hope, may it solid as asnot to campaigning of theweakening and tickets these around alliances electoral large of two conformation the been weeks has recent of development primary the fact, space. In to attract managed C President former and Fernández from come will opposition primary Pichetto ticket’s plurality long announced Macri Mauricio President ofevents, turn unexpected an In elections. primary 11 August of the ahead scenario electoral the clarity to has brought candidacies of The passage June 26 Political Climate República República (C1 Ciudad de Autónoma 950 Esmeralda Torre Bellini 3204 233 +1 (646) (11)+54 0991 5238 www.cefeidas.com [email protected] CONTACT INFORMATION 007 - time Peronist Miguel Pichetto, a move aimed at showing atshowing aimed a move Pichetto, Miguel time Peronist A BL )

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On June 16, across the country woke – These dual announcements all but up in darkness. At 7:07 a.m. a massive failure occurred in the electrical interconnection system

PCR PCR signaled the dissolution of the that left all of mainland Argentina and Uruguay Alternativa Federal—the non- (the countries have an interconnected power Kirchernist Peronist alliance that had grid) as well as parts of Chile, Brazil and

sought to position itself as a third-way Paraguay without power. Power was gradually option between Macri and the ticket restored throughout the day to the approximately 50 million users who were including CFK. Massa and Pichetto, along affected. with Córdoba Governor and Salta Governor , had The evening, Energy Secretary Gustavo been the four main leaders of the space. Lopetegui gave a press conference in which he attributed the outage to a failure in a high- In a likely recognition of the Alternativa voltage transmission line from the Yacyretá Dam Federal bloc’s weakened position, Urtubey that forced an automatic shutdown. Lopetegui announced on June 12 that he will run as said the government is investigating the series of the vice presidential candidate of Roberto events that led to the widespread outage, and that more information would be available in 10- Lavagna, who had previously refused to 15 days. compete in an Alternativa Federal primary. The Lavagna-Urtubey space, which has Opposition leaders quickly seized on the blackout now been named Consenso Federal 2030 to criticize the government’s energy policy, arguing that major increases in electricity prices ( 2030), is supported by have not resulted in better service, but instead in a coalition that includes the Socialist Party, a massive blackout. They also called for the GEN and others. For his part, Schiaretti, government to give explanations to national who recently secured re-election in Congress. However, the quick restoration of service, the extraordinary circumstances the Córdoba (see May PCR for background), occurrence and its distance from the first has shown little inclination to become national elections on August 11 mean it is involved in national politics, preferring to unlikely to have an electoral impact. focus on his province. The markets also initially rebounded on This means that as the August 11 the news and the belief that the move will primaries approach, there are two help improve governability in a possible main presidential tickets (Macri- second Macri term. Pichetto and CFK-Fernández) that are frontrunners, with the Lavagna-Urtubey While the new Macri-Pichetto formula ticket (as well as several other candidates) could attract some Peronist votes, it is trailing behind. not expected to meaningfully increase voter intention for Macri, and it is not What does the Pichetto announcement intended as an electoral maneuver. mean? Instead, the move was intended as a signal to the ―inner circle‖ of political

elite and shows willingness on the The reaction to the announcement of part of Cambiemos—which has now been Pichetto as VP has largely been rebranded (Together positive from the Cambiemos base for the Change)—to open up to other and coalition allies as well as from the political spaces. This has long been a markets. The allies of Macri’s PRO party demand of coalition allies (see March PCR in Cambiemos, the Coalición Cívica (Civic for background), such as the UCR. Coalition, CC) and Unión Cívica Radical Although the party ratified its continuity in (, UCR), reacted with Cambiemos at a late May convention, it praise for the decision, stating that any simultaneously called for the coalition to expansion of the coalition is positive and be expanded and improved. The heads of that the move will promote governability.

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all the main parties in Cambiemos have Peronists into the Juntos por el Cambio said they were previously consulted with space. However, we believe there is

and are pleased with the decision, with reason to be skeptical that his ability ARGENTINA

some even suggesting that Pichetto’s to usher support for the government’s – selection was their request. initiatives will be as successful as

PCR PCR hoped. Although Pichetto has a long Pichetto has been the head of Peronist (PJ) trajectory in the PJ and personal

bloc in the Senate since 2002, but relationships cultivated during his time, he

announced his resignation as the bloc’s leader following Macri’s announcement. Bolsonaro visits Macri in first official to Pichetto was previously allied with CFK Argentina since assuming power during her presidencies from 2007-2015, On June 6, Brazilian President Jair Bolsonaro met but he later broke from her, and his time with President Mauricio Macri during his first as head of the opposition during Macri’s official visit to Argentina since assuming power in presidency has been characterized by January. Bolsonaro and Macri had met earlier in moderation and willingness to negotiate the year, during Macri’s official visit to Brazil in mid-January (see Jan-Feb PCR). The presidents with the current administration. He is had a meeting where they discussed Mercosur, widely recognized as an artful and Venezuela’s crisis, and advanced with the negotiator in Congress and was key to signing of several bilateral agreements. ensuring opposition support for some Following the meeting, Bolsonaro stated that the measures advanced during Macri’s long-awaited Mercosur agreement with the first term, such as a pension reform. European Union (EU) should be concluded soon, and he thanked Macri for his work on the In that sense, Pichetto’s nomination is agreement. There is speculation that the deal could be closed during the 2019 G20 Summit set underlined partly by the same logic as to take place on June 28-29 that behind naming Alberto Fernández the presidential candidate of Frente de Moreover, Bolsonaro unexpectedly announced Todos (see May PCR for background) in that the countries had begun discussions for the creation of a monetary union. Brazil’s Central that it aims to show an attempt to Bank immediately denied this, stating that there reach out to politicians that were are no current projects or studies in place for the previously unaligned between the two creation of a monetary union with Argentina. main presidential tickets. Both Moreover, Treasury Minister Nicolás Dujovne, who was in Japan at the time, stated that Fernández and Pichetto’s nominations although discussions have taken place and a are also aimed at ensuring unified currency could lead to greater stability governability and show recognition from external shocks, this project could only take that whoever wins the presidential place in the long term. The announcement generated mixed reactions, however the general race this year will not have an easy sentiment is that a joint currency is not viable in majority in Congress. The next the short-run. president will inevitably need to build alliances to pass legislation, particularly The leaders signed a bilateral agreement for the construction of two hydroelectric dams and with the PJ, which is well-represented in cooperation agreements in bioenergy and the national legislature and provincial biofuels, defense and security, among others. governments. This bloc has provided the Finally, Bolsonaro reiterated his support for Macri necessary votes to advance much of the and stated that he hopes to strengthen the alliance between the two countries. On this legislation passed during Macri’s first term. occasion, Bolsonaro even went so far as to implicitly back Macri’s reelection bid in order to Much of the positive reaction to avoid “new Venezuelas in the region.” Overall, Pichetto’s nomination has been due to bilateral relations seem to be advancing after a rocky start in January, and the outcome of the a belief that he will facilitate coalition meeting seems to be in line with discussions held building to advance Macri’s agenda in in January, including the push for the conclusion a second term, and since confirming his of the EU-Mercosur deal. nomination, Pichetto has wasted no time in reaching out and trying to bring other

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joined the Macri ticket without the support headed by Macri-Pichetto and the other of other party leaders, and the move has headed by the Fernández-CFK ticket—

left him somewhat isolated. Although he both of which are seeking to amplify ARGENTINA

would preside over the Senate as vice their coalitions enough to achieve a – president, it is not clear how well he possible first-round victory, or

PCR PCR will be able to build support for the guarantee the most votes in a government’s initiatives from within ballotage. the administration, especially for

more controversial measures such as For his part, in recent weeks, Alberto labor reform. In part, the success of this Fernández has made appearances move may depend on the economy’s with provincial governors, including trajectory, as it will be especially difficult Tucumán’s Juan Manzur and San Juan’s to secure Peronist support for any reforms Sergio Uñac, in an attempt to shore up that could be seen as hurting worker’s support. He has also been meeting with rights or vulnerable populations in a other Peronist leaders nationwide, and the second term if the economy does not pick majority of the national deputies of the up. It also remains to be seen how aligned Federal Interbloc (which had been aligned Pichetto is with the government’s agenda. with the Alternativa Federal space) in the national Chamber of Deputies have thrown What is happening with the their support behind him. Although this opposition? will have little impact this year due to a limited Congressional agenda (see below), Since former President Cristina Fernández a greater unification of the opposition de Kirchner (CFK) announced that Alberto could bring near parity between the Fernández would be her running mate (see Cambiemos and opposition blocs in May PCR for background), the latter has the next Congress. kicked into campaign mode and began increasing his profile with media interviews An interesting sign of how the various and public appearances. electoral alliances are shaping up was the final conformation of lists for the The confirmation that Frente Renovador national Congress (one-third of the leader Sergio Mass would join the Frente Senate and one-half of the Chamber of de Todos was a victory for the space—as Deputies will be renewed this year), which we have said before (see May PCR), a had to be submitted by midnight on June measure of the success of the 22 (it is also interesting to note that this is Fernández nomination is how much the first election in which lists must have order it manages to impose in the gender parity). In most provinces, opposition, and Massa was the AF alliances reached compromise lists candidate with the most electoral that reflect the result of internal weight and consolidated political power struggles and negotiations. For structure. Massa will head the Frente de example, in the case of Frente de Todos, Todos list of national deputies from Buenos the list for reflects Aires Province, which in the case of a negotiations with Sergio Massa and Fernández victory, positions him as the Kirchernist groups, both of which are well- possible leader of the Chamber of represented among the candidates. This Deputies. raised concerns that CFK will have significant influence in a Fernández Analysis and outlook administration, however Alberto Fernández has denied this, and said Overall, recent developments show an that in any case, they will have half electoral panorama dominated by two the deputies they did before. This primary political spaces—the one trend was not reflected nationwide, and provincial leaders had significant

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influence in the construction of lists in weeks, that which is available (see their own districts. graph below) suggests that Fernández-

CFK are hovering near the threshold ARGENTINA

The Juntos por el Cambio lists needed to eke out a first-round – similarly reflect the new composition victory—45 percent of the vote or 40

PCR PCR of the alliance. In Buenos Aires City, percent with a 10 point margin ahead of Macri’s PRO party sealed alliances with the next candidate). The effort to bring new allies and ceded several spaces to Asseff into the Juntos por el Cambio space

new coalition members on the list. Long- and avoid vote leakage to Espert, efforts time allies, the UCR and CC parties, to promote the use of boleta corta (ballots receieved high spots in the lists for the on which no presidential candidate national Chamber of Deputies and Senate. appears) in several provinces and recent In what may be a signal of Pichetto’s calls to halt the primary elections suggest limited influence, Peronists received that the government is indeed little space on the lists. Pichetto’s main concerned about the possibility of not contribution was negotiating with Parlasur making it to a ballotage. Their electoral Deputy Alberto Asseff to bring him in as a chances remain constrained by still weak candidate on the Juntos por el Cambio list economic data and a public perception that in Buenos Aires province. Asseff’s UNIR the economy is not improving (see sidebar party was the legal support for the and graph on subsequent pages). candidacy of orthodox liberal economist José Luis Espert, and it briefly appeared On June 25, just three days after party that this maneuver would take him out of lists had to be finalized, the Macri the running. Espert has been polling government began advocating for a bill to consistently around 5 percent in the polls, suspend the August primaries. The bill, and there was likely concern among which was to be presented by UCR in the government that he would attract the Chamber of Deputies, argued that voters that would otherwise vote for primaries are an unnecessary cost and Macri. should not be held in districts where consensus lists have already been Although there has been limited reached. The government has since reliable polling data released in recent changed tack and said it will not advance

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the measure (likely due to a recognition in the country. won in Santa Fé that it did not have the votes to advance after 12 years of socialist governments,

the measure), but its discussion although Socialism retained Rosario, the ARGENTINA

suggests there is real concern the province’s most-populated city. Governor- – outcome of the PASOs (open, elect is a Peronist, who has

PCR PCR simultaneous and mandatory since expressed his support for the primaries), which in the absence of

internal competitions, will largely Economic team presents to investors in serve as a nationwide electoral poll, NYC as indicators remain weak could be adverse for the Macri administration. On June 24, Treasury Minister Nicolás Dujovne, Finance Secretary Santiago Bausili and BCRA vice president Gustoavo Cañonero travelled to With approximately 50 days to go New York to meet with investors and financial before the primaries, candidates will entities at a series of private events. The now turn all their attention to ramping government officials presented on Argentina’s up campaign activities. Meanwhile, fiscal outlook, monetary and exchange rate policy, the political panorama and the country’s International Monetary Fund (IMF) performance under the IMF agreement. They representatives arrived in Argentina on also discussed the labor and pension reforms June 25 to begin meeting with presidential that President Mauricio Macri plans to carry out if candidates Fernández and Lavagna to he is reelected. The officials stopped in New York on their way to Osaka, Japan for the annual G20 discuss the economic and social situation Summit set to take place June 28-29, which they and the outlook for the country’s will be attending with Macri. agreement with the multilateral organization. The visit came after a month of relative stability in the exchange rate market, improved country risk and what appears to be a downward trend in Local elections continue to inflation. Monthly inflation in May was 3.1 reaffirm strength of incumbents percent compared to 4.7 percent in March and 3.4 percent in April. However, 12-month inflation remained high at 57.3 percent. Inflation is June was a busy month in the electoral expected to fall in the coming months to reach 2 calendar. At this point, more than half percent by the time of the general elections as of provinces voting this year have the effect of price freezes on essential goods and no fresh public service tariffs increases (see April elected their governors, and the major PCR for background), in place for the rest of the trend has been to reinforce the year, start to yield results. strength of governing parties According to INDEC’s monthly estimate, economic activity fell by 6.8 percent in March, Gerardo Morales was re-elected in Jujuy, year-on-year, for the tenth consecutive month. in Entre Ríos, Mariano Moreover, industrial production fell by 6.5 Arcioni in Chubut and Juan Manzur in percent in May year-on-year based on 300 SMEs Tucumán. On June 16, Formosa, San Luis, across the country, according to the Argentina Medium-Sized Business Confederation (CAME). Santa Fe and Tierra del Fuego provinces Economic activity is expected to pick up in the also held elections. Formosa re-elected second half of the year on the back of the Peronist Gildo Insfrán for the seventh time agricultural sector and exports and as the effects in a row. In San Luis, Governor Alberto of high currency volatility and high inflation begin to taper off but this will not be enough to limit Rodríguez Saá was re-elected, defeating the overall contraction of the economy. his brother Adolfo Rodríguez Saá as well as Claudio Poggi, Macri’s preferred It is still unclear if the economic developments of candidate. recent weeks will be enough to help secure Macri’s reelection considering that economic activity remains weak and inflation is still high The major exception to the trend of and has only started falling quite late ahead of reelecting incumbents occurred in the elections. With voter sentiment fragile, any province of Santa Fe, which represents 8 deterioration of the economic situation could hurt the Macri administration’s chances of reelection. percent of the national electorate, and is the third most-populated electoral district

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Fernández-CFK ticket. Similarly, in Tierra Chamber of Deputies last year before del Fuego, incumbent Governor Rosana narrowly failing in the Senate. Although

Bertone (Peronist) lost to the measure is unlikely to be taken up ARGENTINA (provincial party), mayor of the province’s

– second-largest city. Both are aligned with U.S. Supreme Court rules against Argentina in YPF nationalization case

PCR PCR the Fernández-CFK presidential formula.

On June 24, the U.S. Supreme Court rejected an By late June, Peronism and their allies appeal from Argentina in a case related to the had won in 10 provinces, which 2012 nationalization of now state-run energy account for 27 percent of the national company YPF, clearing the way for the plaintiff, a electorate, although this is primarily minority shareholder at the time of expropriation, to continue seeking compensation incumbents renovating their terms, in the United States and not in Argentine courts, which isn’t unusual in provincial as the country’s lawyers had requested. elections. Macri’s coalition retained Jujuy and is also likely to win in Mendoza, while Argentina reached an agreement with Repsol to compensate the company for its 51 percent stake provincial parties won in Río Negro, in YPF, but Argentina did not buy out the other Neuquén and Misiones. While it may shareholders. Petersen group, which is owned by seem like a complicated scenario for the prominent Eskenazi family of Argentina, held the national government, Cambiemos a 25 percent stake in YPF and faced bankruptcy after its expropriation. Litigation finance firm only won four provinces in 2015 and Burford Capital Ltd. purchased rights to the claim still won the presidency. in 2015 and is backing the lawsuit, in which it argues that YPF breached a contractual promise Congressional activity grounds to to make an offer to all shareholders and therefore owes compensation. a halt amid election season The Supreme Court decision upholds the July Congressional activity has all but 2018 appeals court ruling in which a panel of judges unanimously found that the case could stalled since late May as the electoral move forward in the U.S. The courts have season picks up, both at the national rejected Argentina’s argument that U.S courts level and at the provincial level. As of have no jurisdiction over “sovereign acts of June 25, the Chamber of Deputies had expropriation”, instead finding that the lawsuit falls under an exception for commercial activity. approved just three bills, while the Senate The case now returns to Judge Loretta Preska of had approved four (this compares to a the U.S. District Court for the Southern District total of 36 passed in ordinary sessions in of New York, which was also the court that 2018). These have included the campaign oversaw the bitter dispute between Argentina and holdout bondholders following the country’s financing reform in the lower house, and 2002 default. Argentina has filed a motion asking laws to address gender violence and for the judge to consider new arguments related establish a promotion regime for the to the jurisdiction of the case. Argentina will knowledge economy promotion in the present its arguments at a hearing on July 11.

upper house (see May PCR for A firm ruling against Argentina and YPF could background). However, this means that require a payout estimated at upwards of USD 3 other measures—such as the reform to the billion. Concern about the impact of this payment criminal code (see April PCR for contributed to an increase in Argentina’s country risk about 4 percent following news of the background) and a new law for SMEs—are Supreme Court decision. Following the decision, on hold. Burford, which previously won a lawsuit against Argentina related to the nationalization of Despite the slowdown in congressional Aerolíneas , stated that it had sold 10 percent of its entitlement to the Petersen case activity, on May 28, the Campaña por el for USD 100 million (it purchased the rights for Aborto Legal Seguro y Gratuito (Campaign approximately USD 17 million). This is one of for Legal, Safe and Free Abortion), several ongoing legal actions against Argentina presented a bill to legalize abortion related to nationalizations under the previous administration. through the 14th week of pregnancy for the eight time. The bill is largely the same as the one that passed through the

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until after the elections, the movement income tax on workers’ pay on holidays continues organizing mobilizations to keep and extra hours, and study the possibility

the pressure on legislators. of excluding this remuneration from the ARGENTINA

tax. Earlier this year, transportation unions – General strike fails to make major began striking on national holidays in

PCR PCR impact protest of this tax (see April PCR for background), but this has been halted The 24-hour general strike held by while negotiations take place. labor confederation Confederación General del Trabajo (General With the exception of a minor cross Confederation of Labor, CGT) on May between Macri and truckers’ union leaders 29 to protest the government’s Hugo and Pablo Moyano (the president economic policies shut down targeted electoral discourse against mafias transportation across the country, but at the Moyanos, with the CGT responding was otherwise largely uneventful. that workers are paying the cost of the administration’s policies), overall, the Several days earlier, Production Minister union movement has been largely Dante Sica and Transportation Minister quiet in recent weeks. This is likely Guillermo Dietrich reached an agreement due to a wait-and-see attitude in with transportation unions to establish a response to the electoral scenario. committee to evaluate the impact of

Source: Indec.

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