Lula's victory triggers Argentina political crisis, not Brazil's

Lula da Silva's victory in Brazil did not create a problem for the Brazilian market yesterday. It created a problem for the Argentine market, and that asymmetry is the story of this week.

While the emerging markets index rose 1.5% and the real stabilized after the initial shock, the Merval racked up three consecutive sessions of losses and JP Morgan's country risk indicator climbed to 763 basis points, its highest level in a year. Sovereign dollar bonds under foreign law gave up as much as 1.6% on Wednesday, while ADRs of Argentine companies are trading at their lowest prices in twelve months: Telecom shed 4.2% in the session, Banco Supervielle 4%, and Mercado Libre — the company most directly exposed to the Brazilian political cycle, as it generates over 50% of its global revenue in that country — has accumulated losses of nearly 9% in the first days of the week. The central bank, for its part, has gone three consecutive sessions without purchasing foreign currency, something unprecedented so far in 2026, choosing to make room for the Treasury to intervene directly while pressure on the peso remains managed, with the wholesale rate closing around $1,542.

The relevant question is not what happened in Brazil. It is why Argentina took the hit alone. The answer, according to analysts consulted by Infobae and the bond prices themselves, has a concrete political logic: the electoral outcome next door was read by investors as a preview of what could happen in Argentina in 2027. According to Pedro Siaba Serrate, analyst at PPI, current sovereign bond prices are pricing in just a 50% probability of Javier Milei's reelection, versus roughly 88% only three months ago. Delphos Investment reinforced the comparative diagnosis: with the GD35 yielding 10.8% annually in dollars, Argentine debt trades at rates above those of Ecuador, Egypt, and Bolivia — countries with equal or worse credit ratings. The paradox is enormous: Argentina has a stronger fiscal position than Brazil, whose cumulative financial deficit exceeds 9% of GDP, while Buenos Aires posts a primary surplus of 1.4% and financial balance. The market rewards the former and punishes the latter for purely political reasons.

Against that tense backdrop, the economic team pulled off a peso debt auction that the market received as a positive signal. The Finance Secretariat placed $11.56 trillion with a rollover of 107%, capturing additional pesos beyond maturities and extending tenors out to 2028 with a dual CER/TAMAR bond that absorbed $3.53 trillion. The operation eases pressure on the November calendar, when maturities hover around $40 trillion, and pushes back the debate about the need to turn to monetary financing. Analysts saw in the 6.21% rate validated for the longest instrument a sign that the domestic market still backs the peso refinancing strategy, though no one is ignoring that the scenario has changed since the post-election Brazilian Black Monday.

The IMF, meanwhile, granted what many analysts described as a technical "pardon" by approving the third review of the agreement at the staff level, despite the government having narrowly missed the June fiscal target — a slippage partly explained by the postponement of the income tax sworn statement. The disbursement of roughly USD 900 million will be subject to Executive Board approval, expected in early December. The organization highlighted that the BCRA has accumulated reserve purchases of about USD 16 billion so far in 2026 and reaffirmed the primary surplus of 1.4% of GDP as the central anchor of the program, though private economists consulted question the viability of sustaining that year-end target. The government, meanwhile, must face next Monday a USD 800 million maturity with the IMF for interest payments, and is weighing whether to use the dollars deposited by the Treasury at the BCRA or buy foreign currency directly from the monetary authority — each option carrying different implications for gross reserves.

Short-term tensions coexist with structurally positive news for the energy sector, which this week released results that illustrate the depth of the Vaca Muerta boom. YPF reported adjusted EBITDA of USD 2.503 billion in the third quarter, the second-highest in its history, with year-on-year growth of 84% driven by unconventional output, which already accounts for 86% of the total oil extracted by the company. Vista Energy, whose shares trade on the Mexican Stock Exchange and on NYSE American, reached record production of 169,000 barrels of oil equivalent per day, up 33% from the same period in 2025, exporting 73% of its crude, with revenue of USD 1.234 billion in the quarter. But as former minister Alfonso Prat-Gay warned, citing official INDEC data, while mining and oil activity is growing at 9% annually, the non-extractive economy has accumulated years of stagnation. The boom exists, but it is not pulling the rest along.

That sectoral divergence finds its starkest expression in the labor and industrial data released this week. Formal private wage employment has now posted fourteen consecutive months of decline, with 266,000 jobs lost since November 2023, falling back to May 2014 levels. Manufacturing fell 3.4% year-on-year in September, accumulating a 2.8% contraction in the first nine months of the year and standing 11% below 2022 levels. Stellantis halted its El Palomar plant until January 2027 and scaled back production in Ferreyra, Córdoba, due to deteriorating domestic and external demand. Bunge closed its Campana plant, laying off 110 workers. The footwear industry, which has racked up a 24.8% year-on-year decline between January and August, has called a national rally for November 19 ahead of the December 14 expiration of an antidumping measure that protects the sector from Chinese products. A Banco Provincia report, based on 320,000 private-sector payroll accounts, revealed that 36% of workers run out of their salary before the 10th of the month, a figure that rises to 57% by the 20th, in a context where formal private-sector wages averaged $1.86 million net in July versus $700,000 for informal self-employed workers.

Next week will test several of these balances simultaneously: the USD 800 million maturity with the IMF, the continuity or not of BCRA reserve purchases, the trajectory of country risk in a political environment that now also includes the diplomatic noise generated by Flávio Bolsonaro's flight with a stopover on Argentine territory, and the October inflation figure, which private consultancies estimate at 1.8%, one-tenth below September — a number that would allow the government to show, at the very least, a marginal deceleration at the worst political moment of its economic management.

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