Argentina’s business-friendly President Mauricio Macri has been defeated in the presidential elections, making way for his left-leaning rival Alberto Fernandez to take control of an economy in deep crisis.
Macri’s defeat will have serious implications on foreign creditors, as Alberto Fernandez’s Peronists party has long been critical of foreign funds, including the International Monitory Fund (IMF), which lent more than US$50 billion to help stabilize the country’s economy.
Argentineans started disliking Macri after he cut fuel subsidies and imposed harsh austerity measures in a desperate attempt to shrink the fiscal deficit.
Despite his many pro-business policies, the country is suffering from a staggering 50% inflation, with the IMF forecasting that GDP will shrink by 1.2% by the end of the year.
What is worrying investors is the election of former President Cristina Fernandez, who will serve as Vice President in the new administration. In fact, Argentina’s current problems have their roots in the generous social welfare programs introduced by Cristina Fernandez.
Macri’s defeat has begun to rattle the financial markets, with thousands of people lining up at banks to withdraw their deposits in US dollars.
Reports say the country has already spent more than US$20 billion to protect peso from a free fall.
The President-elect has promised to increase wages and benefits. Analysts say such a measure will make it harder for the country to repay the loan borrowed from the IMF.