Why Brazil should pay attention to the Argentinian election

As Argentina’s October presidential election approaches, the country has entered the pre-electoral panic so common to life in emerging countries. Since Monday, Argentinian assets are selling fast.

Argentina’s 5-year Credit Default Swap (an index measuring a country’s risk of defaulting on its debt) is the highest in the world—as the chance of default rose over 60 percent. The Argentinian Peso has plummeted over the past 16 months; benchmark interest rates have spiked to 71 percent, and inflation reached 4.7 percent in March alone—more than Brazil’s target for the entire year.

What does this have to do with Brazil? Any economic or political change in Argentina automatically causes effects north of the border, as Brazil’s neighbors are the biggest importers of Brazilian manufactured goods. So it is of utmost importance to keep an eye on events across the border.

Exports to Brazil’s third-largest importer fell by 42 percent in Q1 2019, compared to one year ago. Manufactured goods were down 44 percent—only USD 1.4 billion in exports in January and February of this year. Trade between the two nations is focused mainly on vehicles and auto parts, chemicals, and steel products.

The state of the Argentinian electoral race

In October 2017, President Mauricio Macri’s Cambiemos (“Let’s Change”) party seemed to have all the momentum, crushing the opposition in the mid-term elections. “This is just the beginning. Now, we will transform Argentina,” said...