MercoPress. South Atlantic News Agency

Second black day for Argentine markets and Peso; panic at a possible return of Cristina Fernandez and Kirchnerism

The peso ended down 2.48% at a record low close of 45.1 per dollar, as uncertainty over a biting recession and high inflation frayed nerves about political upheaval

Argentine bonds and the country’s embattled peso currency fell for a second day on Thursday, cranking up the challenge facing President Mauricio Macri as his drop in the polls ahead of knife-edge elections later this year unnerves investors.

The peso ended down 2.48% at a record low close of 45.1 per dollar, though off intraday lows, as uncertainty over a biting recession and high inflation frayed nerves about political upheaval in Latin America’s No. 3 economy.

The peso had fallen over 5% earlier in the day after a 3.52% drop on Wednesday on signs that Macri’s arch rival, populist ex-President Cristina Fernandez de Kirchner, could beat the pro-market leader in an election run-off.

“Macri is getting worse and worse (in the polls), while Cristina is getting better and better,” said Gabriel Rubinstein, a consultant and former economy ministry official.

“There is a crisis of confidence in the government and logically if Cristina becomes the favorite candidate, she generates many fears about her past,” he added, referring to policies such as ushering in currency controls.

Argentine debt was also pummeled, with bond yields rising sharply, while an index of the Latin American nation’s risk has leapt to its highest level in five years, far outstripping other similar emerging markets.

Macri’s re-election bid is looking increasingly fraught as he struggles to tame annual inflation running above 50% and placate a electorate hard-hit by the economic malaise, a volatile peso and rising poverty.

“The main factor dragging down asset prices is the renewed fear of having a populist administration next year amid a limited policy toolkit to anchor expectations,” said Martin Castellano, head of Latin America research at The Institute of International Finance.

Economists said the government could be tempted to intervene more to soothe markets and bolster Macri’s position, though its hands were largely tied after a US$ 56.3 billion financing deal with the International Monetary Fund (IMF) last year.

“There’s not a lot of room for additional monetary policy,” said Carlos de Sousa, senior economist at Oxford Economics. “Macri needs to show positive results before the election.”

The president has already been forced toward some more populist policies, including a freeze on prices for some food staples and services.

On Thursday the central bank hiked the benchmark interest rate, set by daily auctions of short-term “Leliq” notes, up above 71%, a world-high level that has been used to help stem a slide in the peso.

Argentine’s turmoil has spooked global investors and markets, concerned about the rising possibility of debt restructuring under a new leadership.

“When a high-profile country like Argentina comes under pressure, everybody loves to sell,” said Edwin Gutierrez, Aberdeen Standard Investment’s head of emerging market debt.

“It never tends to last very long but that is the nature of the beast, the correlation causes the knee-jerk reaction.”