UPDATE 3-Argentina opposition front-runner strikes populist tone in Madrid, markets hold steady

Argentina's likely next President, opposition front-runner Alberto Fernandez, laid out his populist credentials during a visit to Madrid on Thursday, saying local Argentine interests would trump those of creditors and energy investors. In comments that followed a speech at the Spanish parliament, he indicated he would, if elected, take a tougher stance on international access to Argentina's vast Vaca Muerta shale reserves, a magnet for investment.

"There's no point in having oil if in order to extract it you have to let multinationals come and take it away," he said. "I don't have a problem with multinationals but my primary concern is to generate riches for Argentina and Argentines." Fernandez, a moderate Peronist running alongside populist ex-leader Cristina Fernandez de Kirchner, added he was committed to meeting debt obligations as long as it did not harm Argentines.

"We'll do what we have always done, which is to fulfill and honor our debts, but we will not do it at the expense of our people," Fernandez said in expansive comments while in Madrid to teach university classes. Wary investors have been seeking clues about how Fernandez would lead South American's No. 2 economy since he soundly defeated incumbent President Mauricio Macri in an August primary, dashing the center-right president's chances of winning a general election in October.

The shock result caused a market tailspin with the peso and bonds tumbling to record lows. Macri, who came to power in 2015 as a free-market champion and critic of the interventionist policy, rolled out plans to delay payments on around $100 billion of debt. The government imposed currency controls last weekend, and markets have stabilized but the economic outlook has dimmed. A central bank poll of economists hiked its inflation forecast for the year to 55% on Tuesday and cut its outlook for the economy, which it now expected to shrink 2.5%.

On Thursday, Argentina's country risk fell by 140 basis points to 2,000, after it recently hit the highest levels since 2005 on political and economic concerns. The peso edged down 0.1% to 56.08 per dollar by early afternoon, traders said. On Thursday, rating agency Fitch downgraded the debt of eight Argentine firms from telecoms to energy, saying it believes "the current controls and risks of further tightening could potentially impair the private sector's ability to access foreign exchange to meet debt service."

A day earlier, rival agency Moody's downgraded several major Argentine financial institutions' debt ratings, including Banco Hipotecario, Banco Supervielle, and Banco Macro.

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