Bottom line: Opposition to the economic policies of President Cristina Fernández Kirchner will translate into votes for anti-kirchneristas, and may contribute to a quicker pace of investment going into 2014.
Analysis: As the economy falters in Argentina, the popularity of current President Cristina Fernández Kirchner is waning. On 27 October, Argentines will head to the polls for legislative elections. Although Kirchner’s party, the Frente de la Victoria, may not lose a significant number of seats, heated campaigning on both sides means they will not gain sufficient numbers to push through controversial bills (such as a constitutional amendment that would permit Kirchner to run for a third term).
Foreign investors are responding already to the Frente de la Victoria’s mediocre showing in August primaries. Dow and YPF, the state hydrocarbons firm, signed a contract in September to invest $120 million at Vaca Muerta in Neuquén, the giant shale gas field that Chevron also plans to explore. Dow will focus on the “El Orejano” block while Chevron will drill in Loma la Lata and Loma Campaña. Tecpetrol, which is already operating wells in Chubut promised to invest an additional $200 million there to extend its concession from 2017 to 2027. While outside companies work to extract gas and oil, Argentina still needs to rely on imports to meet demand. Other major oil companies, including Gazprom and Pemex, are in talks to expand investments in Argentina in partnership with YPF, itself nationalized from Spanish parent company Repsol in May 2012.
Recommendation: The industry is giving Kirchner a second chance despite the YPF nationalization, so any move to penalize energy investors would be poorly received. It’s good news for Argentina in the longer term, but may not be enough to salvage Kirchner’s popularity. It also won’t help that Kirchner is undergoing brain surgery this week for a subdural hematoma (blood on the brain), right ahead of the elections and at the climax of a major court battle with the country’s creditors. (The US Supreme Court on 21 October declined a preliminary appeal filed by Argentina over its battle with hedge funds that refused to take part in two debt restructurings following the country’s default in 2002.