Mauricio Macri, the pro-business mayor of Buenos Aires, stumped Argentina’s ruling party with an unexpected strong showing in the presidential elections held on Oct. 25. Results from almost 90 percent of the votes showed that Macri took second place in the elections with 35.2 percent of the voters’ support, just slightly behind Daniel Scioli, the candidate from the official government party, who obtained 35.9 percent of the votes.

Due to this result, runoff elections will be held on Nov. 22 for the first time in Argentine history. Center-left candidate Daniel Scioli, supported by outgoing leftist President Cristina Fernandez and her Front for Victory party, had a major lead in the primaries and in the pre-election opinion polls, causing Scioli’s supporters to have high hopes for an outright victory. However, Sunday’s election results were a clear indication of Argentines’ increasing level of dissatisfaction with many of the policies currently being implemented by the government.

In our most recent Quarterly Market Review, we analyzed the high probability of having runoff elections in Argentina and the decisive role that Sergio Massa, the candidate receiving the third highest number of votes in October’s presidential elections (22.1 percent), would play on in November’s runoff. If our forecast for the second round materializes, 50 percent of Massa’s supporters will vote for Mauricio Macri and 42 percent will vote for Daniel Scioli. Assuming our forecast is accurate, these numbers are likely to position Macri as Argentina’s next president with approximately 45.5 percent of the votes versus Scioli with 44.1 percent.

In another report, Planning for Recovery in Argentina, we analyze what would happen if Daniel Scioli were to become Argentina’s next president, implementing a series of corrective policies at a slow but progressive pace. Here, we provide analysis regarding the potential characteristics of Macri’s policy reforms in terms of both velocity and impact.

At FSG we believe that the implementation of Macri’s package of corrective policies would be made in a very short period of time and with the objective of boosting economic growth on the back of fast investment recovery. The five policies that Mauricio Macri is likely to implement in 2016 if he becomes Argentina’s next president are:

1. Currency devaluation: A progressive and rapid currency devaluation would be implemented throughout 2016, with the objective of returning competitiveness to the export sector and aiming to have a fully floating exchange rate by mid-2017. As we expect the exchange rate to be at around 15 pesos per US dollar by the end of 2016, the main impact of these policies would be on inflation, which would increase in 2016 to somewhere between 35 to 40 percent.
2. Government budget cuts: Austerity would begin in the first half of 2016 and would include 50 percent cuts to consumption subsidies, with a focus on the energy and transportation sectors. Air and train companies would be among the first ones to experience subsidy cuts, as the direct beneficiaries of these services are mainly high-income families.
3. Elimination of trade controls/restrictions: Macri’s government would begin with the elimination of excessive taxes on exports in the first quarter of 2016, first favoring the export sector with a focus on agricultural products (mainly grains). This measure would be followed by periodic cuts to import restrictions and excessive tariffs.
4. Negotiation with holdout creditors: The government would likely start negotiating with holdout creditors early next year, with the goal of reaching an agreement by the third quarter of 2016. The government would try to negotiate a payment plan that will ensure compliance with US court decisions.
5. Elimination of capital controls: Restrictions would be partially eliminated in the second half of 2016. The elimination of capital controls would be implemented gradually to prevent sudden depletion of foreign exchange reserves, with the ultimate pace dependent on how fast Argentina can attract foreign investment.

While the implementation of these policies would indeed improve Argentina’s overall economy and operating environment over the medium term, companies need to be mindful that 2016 would be a tough year of adjustment, characterized by fiscal austerity and lower consumption stemming from higher inflation rates. However, the same policy changes could open new opportunities for multinationals to provide goods and services as a potential Macri administration is expected to provide a number of incentives to attract investment, particularly to the mining and oil sectors, as well as to non-traditional sectors such as renewable energy, technology and health.

Additionally, the elimination of import and price controls should allow for faster and more cost-effective access to intermediate and final goods, which could boost foreign direct investment into Argentina. As a matter of fact, in a recent poll that we conducted with FSG clients, 72 percent of respondents mentioned capital and currency controls as the main roadblock to expanding their presence in Argentina, followed by trade restriction with 64 percent of the votes.

Although the likelihood of a Macri victory in the Nov. 22 runoff elections has significantly increased, FSG strongly encourages executives to continue accounting for all plausible electoral outcomes in their 2016 strategic plans. Clients willing to gain a deeper understanding of the implications of a Macri versus a Scioli victory to their business can access our Planning for Recovery in Argentina report here.

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