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Argentine Peso Collapses as Macri’s Re-election Chances Drop

BUENOS AIRES — Argentina’s currency collapsed on Monday and stocks and bonds crashed to a degree not seen in 18 years as voters flirted with a return to interventionist economics by snubbing President Mauricio Macri and his market-friendly approach in favor of the opposition in the country’s primary vote on Sunday.

The Argentine peso initially dropped 30.3 percent, to a record low of 65 per one United States dollar, after Alberto Fernández, the opposition candidate whose running mate is Cristina Fernández de Kirchner, the former president, dominated the primary by a 15.5 percentage point margin that was much wider than expected. The currency recovered some of its value later in the day, reacing 55 per dollar.

Mr. Fernández has said that he would seek to “rework” Argentina’s $57 billion standby agreement with the International Monetary Fund if he won the general election in October.

Argentina’s local Merval stock index was down 31 percent and bonds also fell. Argentine stocks, bonds and the peso had not recorded a simultaneous decline since its economic crisis and debt default in 2001, according to data from the research firm Refinitiv.

The comprehensive victory by Mr. Fernández and Mrs. Kirchner, members of Argentina’s Peronist political faction, “paves the way for the return to left-wing populism that many investors fear,” the consulting firm Capital Economics said in a note to clients.

“With a renewed focus on sovereign default risks, bonds, equities and the peso will come under severe pressure in the coming days,” the firm said in its note. “That said, falls in the currency might be tempered by intervention in the foreign exchange market.”

Argentina’s central bank intervened hours after local markets opened, selling $50 million in the foreign exchange market to defend the peso in the face of the huge sell-off. In the auction, the bank used its own reserves for the first time since last September, traders said. The bank later said it planned to sell another $50 million of reserves.

[Read more about the election result that surprised investors in Argentina.]

The peso’s collapse is unlikely to affect other markets, said Win Thin, who leads currency strategy at Brown Brothers Harriman in New York.

“It’s a very small market,” he said. “Ever since Macri reopened the markets, took some market-friendly measures, there’s been a trickle of activity back in the peso and Argentine assets in general. Money has been trickling back in but it is still very minimal.”

Mr. Thin added that “beyond Brazil and maybe Uruguay, it’s going to have a very limited impact from an economic standpoint.”

Mr. Macri, a scion of one of Argentina’s wealthiest families, came to power in 2015 on a pledge to kick-start the country’s economy, Latin America’s third-largest, via a liberalization wave.

But the promised recovery has not materialized, and Argentina is in a recession with inflation topping 55 percent.

An acute financial crisis last year hit the peso and forced Mr. Macri to take the monetary fund loan in return for pledging to balance Argentina’s deficit.

Despite Mr. Macri’s struggles, investors view the ticket led by Mr. Fernández as a riskier prospect because of the opposition’s previous interventionist policies.

The results on Sunday indicated that Mr. Fernández had enough support to clinch the presidency in the first round of voting in October and avoid a runoff in November.

Voters were given a stark choice on Sunday: stay the course of painful austerity measures under Mr. Macri or return to economic policies that are heavy on state involvement.

Ms. Kirchner imposed strict currency controls that hurt investment badly during her administration from 2007 to 201. She fought with the farm sector over export taxes and presided over a multiyear standoff with bondholders that kept Argentina locked out of the international capital markets.

What particularly dented Mr. Macri’s support were newly impoverished Argentines who were more energized to vote to punish him at the polls, political analysts said.

“Macri has already implemented a number of short term measures to try and shore up support ahead of the October vote,” said Ilya Gofshteyn, senior emerging markets strategist at Standard Chartered Bank. “Additional promises can be made, but the gap he needs to make up is a very wide one.”

Jair Bolsonaro, Brazil’s right-wing president, warned that his country could see a wave of migrants fleeing Argentina if Mr. Fernández were to win the presidential election.

Mr. Bolsonaro has cast himself as a foe of the left-wing leaders around Latin America and has celebrated his friendship with Mr. Macri.

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