Argentina’s presidential primary is over, and the stage is now set for October’s presidential and legislative elections. With the participation of 92.8 percent of the country’s registered voters, Argentina’s primary election results provide a good indication of how the actual election is likely to shape up and show that the race is still relatively open—rather than being a polarized, two-candidate contest.

Leading the race is the Frente Para la Victoria party (FPV) candidate Daniel Scioli, who obtained 38.4 percent of the total votes. Scioli is the current governor of the province of Buenos Aires and President Fernandez’ candidate of choice, though during most of his campaign he has steered clear of adopting an explicitly Kirchnerista political identity. Then comes the candidate of the relatively new political coalition Cambiemos, Mauricio Macri, who obtained 30.1 percent of primary votes. Macri is the current mayor of Buenos Aires and the only openly pro-business and pro-free-market candidate among the top contenders for Argentina’s presidency. Bringing up the rear is Sergio Massa, the candidate of Argentina’s newest political coalition, Una Nueva Argentina (UNA), who obtained 20.6 percent of primary votes. Massa is a former minister of President Fernandez and calls himself as a pro-market Peronist dissident.

If these results were to carry forward to October’s elections, Scioli would be just under the thresholds to win outright in the first round and would have to face a run-off election on Nov. 22. According to Argentina’s constitution, in order to win in the first round of the general election, a candidate must garner more than 45 percent of the votes or more than 40 percent with a 10-point margin over the second-place candidate. Based on the primary election, Scioli is unlikely to win in the first round, and recent polls actually give Macri an edge in a potential run-off.

In our most recent report, Planning for Recovery in Argentina (client-only download), we outline our case for a runoff between Daniel Scioli and Mauricio Macri, though recent political negotiations between the three top candidates and other smaller political parties are reshaping Argentina’s political landscape and potential results for October’s elections. As such, investors should not conclude that the numbers that we have seen so far mean a run-off between Scioli and Macri is a certainty. Scioli still has the option to reach agreements with Peronist territorial leaders and win in the first round. Whereas for Macri, the decisive variable is likely to be his ability to build an alliance with Sergio Massa. In this respect, a first-round Scioli victory seems more likely, given the lack of progress on a workable agreement between Macri and Massa.

While Daniel Scioli is most likely to become the next President of Argentina, regardless of who wins Argentina’s elections, it is clear that he will seek to change the course of the Argentine economy. As such, we strongly believe that October’s elections will present an opportunity for shift in tack that could significantly improve the operating environment for multinationals and the overall growth trajectory in Argentina.

Assuming Daniel Scioli becomes the next president of Argentina, we believe that the new government will implement a package of macroeconomic adjustment policies that will improve Argentina’s economic and business environment. The main challenge in the implementation of these policies will be to avoid any significant impact on the purchasing power of middle- and low-income families, as these could lead to a significant slowdown in the implementation of policies or, even worse, a return to Argentina’s current policies.

For those reasons, we believe that the implementation of the new government’s adjustment policies will be made at a gradual but progressive pace and will be based on five major components:

1. Controlled currency devaluation: A controlled devaluation will be implemented progressively throughout 2016 and 2017 to forestall any major impact on consumer spending caused by a pass-through inflation, followed by a transition to a floating exchange rate in 2018.
2. Government budget cuts: Government austerity will begin in the first half of 2016 with the implementation of cuts in consumption subsidies that do not directly benefit low-income families, as the government will seek to continue protecting consumer spending in certain segments during the period of adjustment.
3. Elimination of trade controls/restrictions: The new government will begin to eliminate excessive taxes on exports in the first quarter of 2016, causing a positive impact on agricultural exports as this sector will be the first to benefit from the elimination of trade restrictions. Elimination of import restrictions will be slower, with the objective of eliminating all restrictions by the end of 2016.
4. Negotiation with holdout creditors: The government will actively negotiate with holdout creditors in an effort to reach an agreement that will comply with U.S. court decisions, and restore access to international financial markets. Negotiations will begin as early as Q1 2016, given that the terms of any agreement will need to be approved by the congress.
5. Elimination of capital controls: Basic restrictions on transactions will be partially eliminated in the second half of 2016, which will be followed by a progressive elimination of all capital controls during 2017. The timeline for the elimination of capital control will follow the successful negotiations with holdout creditors, as Argentina will need to regain access to international capital markets and attract more investment to be able to eliminate all capital controls.

As the pace of implementation of these five policies will be gradual, the pace of economic recovery will also be gradual. We believe that under this scenario of gradual implementation of adjustment policies, economic growth for Argentina in 2016 is likely to be 0.1 percent and in 2017 is expected to be 1.9 percent.

While the implementation of these policies will indeed improve the overall economy and operating environment, and also bring a number of new business opportunities for multinationals, companies need to be mindful that the adjustment period, particularly in 2016, will be filled with uncertainty and volatility. As such, being prepared by making contingency plans that account for different scenarios like the ones we propose in our Planning for Recovery in Argentina report will be critical for the success of multinationals during Argentina’s recovery period.

For more on planning for recovery in Argentina, FSG clients can access the full report via the client portal. Not a client? Contact us to learn more.