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Argentina’s Peronist economy minister Sergio Massa has pulled off a surprise win over libertarian challenger Javier Milei in the first round of the presidential election, setting up a polarising run-off next month amid growing economic turmoil.

With 98.5 per cent of votes counted Massa, from the country’s centre-left ruling coalition, had won 36.7 per cent, against 30 per cent for Milei’s La Libertad Avanza party (LLA). Massa and Milei will fight a run-off on November 19.

Few had believed that after presiding over triple-digit inflation and growing poverty, Massa could engineer an election win, with the Peronists placing third in August’s nationwide primaries. But the political veteran ran an effective campaign, projecting moderation and stirring fear among voters about the effect of Milei’s radical plans to shrink the state.

Sunday night’s result overturned almost all opinion polls, which had shown a consistent lead for Milei, a mop-haired economist and television personality who finished first in August.

Patricia Bullrich, the candidate for the mainstream centre-right opposition bloc Juntos por el Cambio (JxC) preferred by many investors and business leaders, was eliminated after receiving just 23.8 per cent. Once the favourites, JxC were hurt by a divisive primary and a campaign that targeted law and order rather than the economy.

In his victory speech, Massa reiterated a campaign pledge to form a unity government with different political parties, vowing to end the divide between Peronists and non-Peronists that has dominated Argentine politics for 40 years. “I’m someone who believes in dialogue and consensus,” he said.

Milei recognised the election results and called on “everyone who wants a change” in Argentina to defeat Peronism. “I’m ready to have a clean slate . . . beyond all our differences we have to understand that we have a criminal enemy against us.”

138%Argentina’s year-on-year inflation figure in September

A pragmatic dealmaker from the right of the Peronist movement, Massa has overseen a rapidly worsening economic climate under outgoing president Alberto Fernández over the past 14 months. Inflation hit 138 per cent a year in September while Argentina’s foreign currency reserves have been drained to support the plunging peso.

Despite the deteriorating economy, Massa increased welfare spending and announced tax breaks during the campaign, contrasting his determination to maintain Argentina’s social safety nets with Milei’s pledge to slash the number of government ministries.

“In the weeks through Sunday November 19, the government is expected to continue to pull rabbits out of a hat in an attempt to muddle through and avoid a disordered devaluation,” said Diego Pereira and colleagues at JPMorgan in a note. “The continuation of lax fiscal policy going into the run-off would only aggravate the magnitude of the imbalances to correct following the presidential election.”

Milei’s insurgent bid for the presidency has been fuelled by widespread frustration in Argentina after several decades of economic woes.

He ran a furious campaign against mismanagement and corruption by Argentina’s political establishment while promising to slash spending by up to 15 per cent of gross domestic product and adopt the US currency. He also opposed abortion, denied climate change and attacked the Argentine-born Pope Francis, a former Buenos Aires archbishop, as a “filthy leftist” and an “imbecile”.

Neither of next month’s second-round contenders will have a majority in Argentina’s congress. Projections from the congressional vote showed the Peronists will have 108 seats in the lower house, 21 short of a majority, with JxC at 93, Milei’s party at 37 and the remainder going to small blocs. In the senate, where a third of the 72 seats were up for grabs, the Peronists will have 34 seats, JxC 24 and LLA eight.

Massa’s national victory owed much to a strong performance by the Peronists in Buenos Aires province, where more than a third of Argentines live. Incumbent Axel Kicillof, an ally of former Peronist president and current vice-president Cristina Fernández de Kirchner, triumphed in the gubernatorial race there with 44.9 per cent, far ahead of JxC’s 26.6 per cent.

While markets had been unnerved by Milei’s plans to overhaul the economy, the Peronists’ strong performance might hit Argentina’s already deeply distressed government bonds, said Martín Rapetti, executive director of economics consultancy Equilibria.

“Massa promises much better governability than Milei but the market consensus has doubts about whether Massa really wants to or is able to do the reforms that Argentina needs,” he said.