“Crucial election”: The post-election scenario proposed by two international banks and its impact on the dollar

Two international banks anticipated the post-election scenario after the This Sunday's Buenos Aires legislative election was described as "crucial" in the country's largest electoral district, the prelude to the national elections in October.

On the one hand, Bank of America considered the Buenos Aires vote a risk for Argentine bonds.

In a report to investors, he outlined four possible scenarios for the future of the assets depending on the final outcome, one of which (the pessimistic one) anticipated the possibility that Peronism would emerge stronger , which would result in the bonds having a negative yield of 12% and returning to the levels of the fourth quarter of 2024.

In this context, the entity announced that " there would be no possibility of access to the external market ." "We believe that the continued fiscal discipline of Javier Milei's administration and his firm commitment to paying the external debt would prevent an excessive bond sell-off if our pessimistic scenario materializes," it projected.

Along the same lines, he estimated that once the electoral test is over, the government will take additional measures to improve fiscal balance and resume accumulating reserves to stay current with its external debt obligations.

In addition to the electoral risk, the bank raised other threats to Argentine assets : the changes in the exchange rate strategy and the leak of Karina Milei 's audio recordings that led to allegations of corruption at the National Disability Agency (ANDIS).

Meanwhile, a report by the US bank JP Morgan indicated that, with Fuerza Patria's victory by more than five points over La Libertad Avanza, " the exchange rate would likely rise to the limit of the exchange rate band " as a first effect.

Updated to date, the floating band cap is at $1,471 , so economists already anticipate that the government should stop using Treasury dollars to intervene and implement a change of strategy to contain the exchange rate situation.

Beyond looking ahead to the next day, he summarized how the economy headed into the Buenos Aires elections . "High-frequency data from the last week of August indicate that the general CPI is at 2% month-on-month, despite high volatility during the month and an average 5% depreciation of the exchange rate," he described.

The price variable was also accompanied by the other side of the coin : wages . JP Morgan's figures showed that, compared to November 2023 levels, before Milei became president, they increased 2.6% in real terms through June. However, it warned of a " strong divergence ."

The heterogeneity is marked by the economic sector to which the individual belongs. In the case of the public sector, the bank described that "it has been harmed, with a drop in real wages of 14.3% compared to November 2023." The formal private sector suffered a decline of 0.5% , but informal sector wages "have increased by 55% ," it noted.

Regarding pensions , in real terms, he noted that " they were 35% above the levels observed in November 2023 and in line with the average levels observed in the 2016-2017 period."

Outside of economic variables, the JP Morgan report also cited the confidence index prepared by Torcuato Di Tella University , which measured a 6.6 percentage-point drop for the government in August. The document stated that something similar occurred in September 2024, when the President announced his intention to veto the university funding bill, but then climbed again by 10 points.

So, the calendar shows the Buenos Aires elections as a stopover before the main event . However, their outcome and influence over the seven weeks leading up to October 26th could make the vote in the province of Buenos Aires more than just a prelude.