Outsider Milei Upends Argentina’s Election With Primary Win

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(Bloomberg) -- Follow our live blog and see the live results as election data come in.

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Argentina’s outsider congressman Javier Milei pulled off an unexpected primary win that upended this year’s presidential race in the inflation-ravaged nation.

With 96% of ballots counted, the congressman often compared to Donald Trump was the most voted individual candidate with 30.1%. He came in ahead of the probusiness coalition led by Patricia Bullrich — who together with defeated hopeful Horacio Rodriguez Larreta garnered 28.3% of votes — as well as the ruling Peronist bloc of Economy Minister Sergio Massa, with 27.2%.

The result is a clear rejection to Argentina’s political establishment after years of economic hardship and runaway inflation. Argentine assets are likely to sell off on Monday as investors fear that Milei’s proposals, including the dollarization of the economy, would trigger financial mayhem. Market volatility is also set to grow as the primary shows the Oct. 22 election will be an unpredictable three-way race.

“The anti-establishment sentiment finally arrived to Argentina. After 20 years of economic crisis, that’s not surprising,” said Daniel Kerner, Latin America director at Eurasia Group. “This is the worst result for markets.”

Milei, who received the endorsement of Brazil’s former President Jair Bolsonaro before the vote, also stands to shake regional politics. An eventual win by the libertarian candidate would clash with the leftist leaders currently governing Brazil, Mexico, Colombia and Chile.

“Politicians are not the solution, they’re the problem,” Milei said in fiery speech after preliminary results of the vote were published.

Bullrich, now the candidate representing the market-friendly coalition known as Juntos por el Cambio, or Together for Change, said Milei defended “good ideas” during the campaign. “It will be a tight election next time,” she said after initial results were published.

Read More: Argentine Economic Chaos Fuels Hard-Liner’s Presidential Bid

Inflation, Recession

The primary election, designed to allow Argentines to choose the candidates who will compete in the Oct. 22 general election, plays the role of a trusted barometer of public sentiment in a country with a long history of unreliable opinion polls. Four years ago, local markets had a meltdown when the primary results caught investors off guard.

Whoever wins Argentina’s highest office later this year will have to quickly put in motion a plan to cut government spending and stave off hyperinflation while addressing growing concerns about public security and a looming recession.

The challenge is immense. Consumer prices are rising by more than 115% a year as the central bank prints pesos to finance the social programs and subsidies that have so far ensured the subsistence of millions of Argentines. But that same strategy is at the root of the inflation and currency crises that are tearing the country’s social fabric.

Read More: Argentina Voters Are on a Collision Course With Hyperinflation

More importantly, this year’s election will gauge Argentines’ appetite for the tough economic reforms needed to pull South America’s second-largest economy from the brink of a precipice. The country didn’t get here overnight, but after decades of failed policies, debt defaults and economic recessions — at least 15 of them since the 1950s.

Support from the International Monetary Fund will be crucial in any recovery plan for Argentina, which received a record $44 billion bailout from the IMF in 2018, during Mauricio Macri’s term. The program has been renegotiated under President Alberto Fernandez, more recently in a deal brokered by Massa last month.

The economy minister managed to get just enough money — as much as $10.8 billion by year-end — to repay the Fund and keep the economy going without the need for drastic measures until a new president takes over. Yet investors consider a significant peso devaluation — not smaller than 20% — as inevitable. The question is whether the government will be able and willing to delay it until a new president takes office in December.

Argentina may need to wait three more months to know who its future president will be. An outright victory in October requires the top candidate to receive 45% of valid votes, or 40% of them with a 10 percentage point difference from the runner-up. If neither scenario materializes, there will be a runoff vote on Nov. 19.

Burn the Central Bank

Milei’s recipe to fix Argentina’s economy sounds as bombastic as his style. He has proposed replacing the struggling national currency with the dollar and said he would “burn down” the central bank for mismanaging the economy. Yet he may face lack of congressional support to pass legislative reforms, according to political analysts.

The economist-turned-politician rose to fame in recent years for his combative profile in television programs and social networks. With an eccentric look and an energetic tone, he won followers disenchanted by the political elite that has been governing the country for the past several decades. Some of his controversial opinions include the defense of gun ownership, his stance against abortion and the sale of human organs.

“Milei came out with two or three strong, clear messages that resonated with young people in the upper-middle class,” said Mariel Fornoni, director of polling firm Magement & Fit. “That came down to lower classes where he became a sort of rock star.”

Read More: Argentina’s 100% Inflation Opens the Way to a Presidential Upset

Milei’s election strategy is simple: “If we get to a runoff, we’ll win,” he said in an interview with Bloomberg News in March.

After the primary election results Sunday night, he now says he’s ready to win the presidency in the first round of voting.

--With assistance from Giovanna Bellotti Azevedo.

(Updates vote count, adds comments from Bullrich, pollster starting in seventh paragraph.)

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