Previous Quarterly Editions
Expropriation Risk: 58 64 63 64 ►Political Violence Risk:59 50 48 48 ►Terrorism Risk:33 31 29 25 ▼Exchange Transfer and Trade Sanction Risk: 55 73 73 73 ►Sovereign Default Risk:66 74 74 74 ►
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Protest intensity in 2022 and Q1 2023* 2022 Q1 2023Cost of living : Very High Very HighAll protest: Very High Very High
Cost-of-living protest risk in 2023*Wage protest: Very High Food/fuel policy protests: Medium
After reaching 94.8% in 2022, a 31-year high, annual inflation surpassed the psychological barrier of 100% for the first time since 1991 in February, reaching 6.6% month-on-month and 102.5% year-on-year. Economy Minister Sergio Massa had hoped to reduce month-on-month inflation to 3% by April, while the full-year forecast included in the 2023 budget was 60%. Both these figures now appear unattainable. The Economy Ministry recognises deficit spending and monetary emission are key factors in high inflation, a position rejected by supporters of Vice-President Cristina Fernández de Kirchner (CFK).
Nevertheless, and although high inflation will be an election issue, spending cuts ahead of the October elections will be politically untenable, especially in a context in which the official urban poverty rate has reached 43%. According to private estimates, that figure would exceed 50% without government social welfare programmes and subsidies. The poverty rate is especially high in the densely populated Greater Buenos Aires area, where CFK’s support is increasingly concentrated.
Massa will seek to continue the fiscal tightening begun last year, including cuts in energy subsidies and targeting of subsidies, but these efforts will fall foul of CFK and her supporters in the youth movement La Cámpora, who consider that any form of austerity will lose votes in the unpredictable October 2023 elections. They will also drive protests demanding increased rather than reduced government aid, which have already been expanding in recent months.
President Alberto Fernández’s term, since December 2019, has been complicated by the COVID-19 pandemic which hit Argentina hard, political frictions within the governing Frente de Todos (FdT) coalition (especially between Fernández and the supporters of CFK), and the unpopular deal to restructure some USD45 billion of debt with the IMF. Moreover, CFK and her supporters have been increasingly at odds with the government and have both tacitly and explicitly rejected many of its economic policies; she and Fernández have been estranged for months and divisions have further complicated policymaking within the government.
The FdT is divided and some of its senators have formed an independent bloc. There are considerable question marks over its presidential candidate for this year: the deeply unpopular Fernández has said he will seek re-election, but he is unlikely to win the August party primary. Meanwhile, Massa’s aspirations will be undermined by poor economic performance. The key question centres on whether CFK will stand in the wake of her corruption conviction late last year. While she initially said she would not “be a candidate for anything,” she may reverse this position. CFK loyalists will not define their own plans until she has done so. CFK, like all other leading FdT figures, has extremely high disapproval ratings but also enjoys the highest voting intentions among possible FdT candidates at around 30%.
For its part, the opposition is also badly divided. Although former President Mauricio Macri (also deeply unpopular) has now announced he will not compete for the nomination, he appears set to back the candidacy of former Buenos Aires governor María Eugenia Vidal against the two frontrunners for the Juntos por el Cambio (JxC) coalition’s nomination, former Security Minister Patricia Bullrich and Buenos Aires Mayor Horacio Rodríguez
Larreta. Others within the coalition’s more centre-left parties, including Elisa Carrió from the Coalicion Civica, and Radical leader Gerardo Morales, governor of Jujuy province, are also likely to contest the nomination. Again, the candidate will only be confirmed following the August open primaries; Bullrich would push the coalition to the right, while Rodríguez Larreta would be a more centrist candidate likely to attract voters from outside the JxC.
Meanwhile, the far-right libertarian candidate Javier Milei has gained support among disaffected younger voters in particular and could reach an unpredictable second round. A Milei victory is unlikely but would deepen instability given his radical discourse and likely inability to pass legislation through a congress where he would lack a majority and would have difficulty negotiating support from other parties.
The government that takes office in December is almost certain to be weak and have limited popular support from the outset and will face protests over measures to reduce economic imbalances at a time of declining growth and high inflation. Many of those protests will focus on rejection of the USD45 billion deal with the IMF.
Currently, Rodríguez Larreta and Bullrich have the highest approval ratings among potential candidates, at 47% and 44% respectively, while those with the highest rejection ratings are CFK (61%), Macri and Fernández (both 60%).
*Note: Protest intensity is calculated based on ACLED. Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of calculations, see the introductory essay.
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Expropriation risk to foreign investors per se is relatively limited at present, given the number of companies that have already exited Argentina, lack of government funds, and the fact there are currently no politically or emotionally significant companies (such as YPF or Aerolineas Argentinas) to be targeted.
The assassination attempt against CFK in September last year has sharply raised concerns over the risk of political violence. Although it is not yet clear whether those involved acted alone or were linked to wider political groups, the fear of increased political violence (including from right-wing groups such as Federal Revolution) will remain high.
Furthermore, protests have continued in recent months among both pro- and anti-government factions, with the IMF debt deal a key point of contention. This will continue in coming months as economic conditions deteriorate. Overall, personal security and the risk of violent crime will remain a key concern.
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There has been no major terrorist attack in Buenos Aires since 1994 and the risk of terrorism in Argentina remains low today.
Central bank reserves have continued to decline. The government has tightened import controls and less formal measures also abound to discourage imports. The continuing drought has undermined agricultural output and exports, making it even less likely that reserves targets will be met.
The official peso exchange rate has now fallen to some ARS210 to USD1, while the so-called ‘blue’ dollar is currently around ARS385 to USD1. Lacking foreign reserves, the central bank will continue to limit access to U.S. dollars.
Although the economy continued to recover from the 2020 slump last year, with an expansion of 5.2%, growth slowed in the latter part of the year with a quarter-on-quarter contraction of 1.5% and is likely to decline further this year. 2023 will be marked by low growth, worsening foreign exchange pressures and fears of devaluation, together with inflation still likely to remain in the high double-digits.
The 30-month Extended Fund Facility agreed with the IMF in March 2022 will delay repayments until 2026, with final repayment made in 2034 and this averts near-term default risk. However, difficulties in rolling over domestic debt will increase concerns over a possible default, as well as the onerous and short-term conditions on which rollovers are being made. The incoming government is likely to face a near-term domestic debt crisis.
Moreover, the IMF deal was approved only very reluctantly by the governing FdT coalition in Congress and there is still resistance to many of its terms, as seen above. In addition, the deteriorating domestic and international environment will make the deal’s fiscal and monetary targets more difficult to achieve, and worsening social conditions are likely to harden resistance to compliance, especially as the 2023 elections draw closer.
Lawsuits in the U.S. against the federal and some provincial governments may see new payment orders in coming months, which may well not be met.
