Argentina's Kirchner baffles with her VP candidacy

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      By Emerging Markets Debt TeamEaton Vance Management

      Boston: Last weekend, former Argentina President Cristina Fern√°ndez de Kirchner announced that she will not be a candidate for president and instead will be running for vice president in the country's October 2019 election.

      The announcement was a twofold major surprise. First, most observers believed Kirchner would very likely run for president or simply not run at all. Second, most observers believed that she would have endorsed her former finance minister, had she chosen not to seek the presidency. Instead, she is asking a former adviser from early in her administration, Alberto Fernandez (no relation), to run.

      Kirchner's tenure as president from 2007 to 2015 was widely viewed as a disaster by the markets, as the country was plagued by inflation and defaults on its debt. President Mauricio Macri, who succeeded Kirchner in 2015, has done a credible job patching things up with bondholders, who fought with Kirchner over terms of debt restructuring. He has also restored relations with the business community and cooperated with the IMF's loan program. Argentina even managed to float a 100-year bond in 2017, after having been cut off from the international capital markets for 14 years.

      Kirchner's selection of Fernandez as running mate raises many questions. Fernandez spent the better part of the last decade criticizing Kirchner, though they are both associated with the Peronist party. Prior to briefly serving Kirchner, Fernandez was chief of staff to Kirchner's late husband, President Nestor Kirchner. His only elected public service was in the Buenos Aires city legislature. Little is known about what set of policies Fernandez will champion.

      Bottom line: With rising inflation, high unemployment and renewed recession, Macri had already been facing a difficult election campaign. On the one hand, this development decreases the probability of a very negative outcome - a return to the presidency by Kirchner. However, this combined ticket likely reduces the chances for Macri, a market-friendly president, to win.