Sunday vote to show how likely Argentina is to stay on Macri's free-markets path

BUENOS AIRES (Reuters) - Argentina’s election primary on Sunday will determine President Mauricio Macri’s chances of winning a second term in October, with the country’s embattled peso currency expected to take a fresh beating next week if the business-friendly leader fares worse than expected.

FILE PHOTO: Argentine President Mauricio Macri attends a rally, in Buenos Aires, Argentina August 6, 2019. REUTERS/Agustin Marcarian

As the main political parties have already chosen their nominees, Sunday’s vote will serve as a grand opinion poll on Macri’s chances of beating the main challenger, Alberto Fernandez of the left-leaning Peronist party.

The big question is whether Fernandez or Macri can win in the first round of the general election on Oct. 27. To avoid a second-round runoff in November, one candidate would have to clinch at least 45% of the October vote.

“The most important thing on Sunday is to see who passes 40% by the most votes. That’s the candidate most likely to get 45% in October and become president,” said Julio Burdman, a Buenos Aires-based pollster.

Opinion polls show Fernandez in the lead, which is not surprising given the weakness of Argentina’s economy under Macri.

As unhappy as they are about Argentina’s recession and high inflation, business leaders - and many well-to-do voters - say they are more concerned about a possible return to populism and intervention in the markets under the Peronists.

So rich Argentines may get nervous and ditch the peso if Macri performs poorly in Sunday’s primary.

“The potential panickers are middle- and upper-class Argentines, who will sell their pesos if it looks like Fernandez is going to win the presidency. This would pressure the exchange rate,” Burdman said.

The peso has already weakened 17.3% so far this year to 45.6 per U.S. dollar after a 55% swoon against the greenback in 2018.

Fernandez has chosen Argentina’s previous president, Cristina Fernandez de Kirchner, as his running mate. Both say they want the government to exert more control over the economy.

Kirchner is facing multiple corruption charges, all of which she denies. Critics say she nearly bankrupted the country after years of high deficits and heavy-handed currency controls that scared off investment and spurred capital flight during her two terms as president.

But she remains loved by millions of low-income Argentines who remember generous welfare spending by her administration.

Macri became president in late 2015, promising a new era of sustainable growth. Three and a half years later, the economy is shrinking while 55% inflation makes it harder for poor families to feed themselves.

Polls show Fernandez likely to get up to five percentage points more support than Macri on Sunday.

“If results are in line with expectations, the outlook for the government would be positive, because a small distance between Fernandez and Macri could be reversed between now and October,” said Mariel Fornoni, an analyst at polling firm Management & Fit.

“A more severe defeat for Macri on Sunday would complicate matters going into October, especially because the government would have to contain the market’s loss of confidence,” she said.

Reporting by Hugh Bronstein, editing by G Crosse