Government defeat in Buenos Aires Province: Political and economic implications
The ruling coalition suffered a 13-point loss in Buenos Aires Province, a stronghold of Peronism. The markets reacted sharply: equities fell up to 25%, bonds weakened, and country risk surpassed 1,000 basis points. Inflation stabilization has come at the cost of recessionary pressures, weak reserves, and rising doubts about policy sustainability. The defeat in Buenos Aires undermines the assumption that electoral strength in October would create a virtuous circle of lower risk premiums, capital inflows, and stronger reserves. With that scenario unlikely, the government must re-calibrate:
Reserves: Prioritize accumulation to strengthen credibility.
Exchange Market: Gradually liberalize and move toward a freer float of the peso.
Rates: Reduce both the level and volatility of interest rates to restore credit and investment.
Growth: Shift from inflation-only stabilization toward policies that address employment, purchasing power, and infrastructure.
The government’s strategy has achieved inflation control but at the expense of growth, reserves, and market confidence. Without a political mandate in October, structural reforms will face significant obstacles. Policy re-calibration—shifting focus toward reserves, exchange-rate flexibility, and sustainable growth—is both urgent and unavoidable.
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