In the midst of a crisis of confidence due to the nationalization of private pension funds and misgivings about the soundness of its economy, Argentina sees the victory of Barack Obama in the U.S. as an opportunity to reconnect the country, especially when you take into account that the new North American president emphasized the need for more dialogue with Latin America. 

However, the characteristic of more protectionist Democrats on the economy creates obstacles to trade relations between the two countries. Moreover, it is important to highlight the difficulty of access to credit that Argentina will have as a consequence of default given to international organizations - in the recent past - and the international financial crisis.

About one year ago, presidential candidate Cristina Kirchner led opinion polls and moved closer to the Casa Rosada. Representing the popular government of Néstor Kirchner, Cristina would be elected president in the following month.

 

However, her honeymoon with public opinion did not last long. Cristina is now an unpopular president leading a government offering no confidence. During the short period she’s been administering Argentina, she has got into fights with the media, VP Julio Cobos and important wings of the Partido Justicialista.

 

The retenciones vote also showed that the Casa Rosada cannot count on a majority within Congress. Despite having a nominal majority, Kirchnerism ended up on the losing side.

 

After one year, the Argentine government has seen quite a change. It has gone from a honeymoon to a period of doubts and uncertainties. Now, all attentions are turned to the consequences of the financial crisis. It will be the ultimate test for her contested economic policies. 

Faced with worldwide credit and stock market collapse, President Cristina Kirchner has taken a controversial measure. She submitted a bill to Congress which nationalizes the AFJPs (pension fund administration companies) that had been privatized in 1994 by then-president Carlos Menem. According to the Casa Rosada, the AFJPs have accumulated 20% losses and were facing trouble to pay pensioners.

 

In order to justify the nationalization, the government alleges that this action is similar to bank relief measures taken by G-8 nations. However, the explanation has not been well accepted. International banks have classified the decision as a strategy to honour short-term debts. And the opposition believes that this re-nationalization is part of the same nationalization policies that started in 2003. Since then, the State has taken over postal services and water supply, as well as Aerolineas Argentinas.

 

Reactions have been negative among investors as well. One day after Cristina’s announcement, the Merval index at the Buenos Aires Stock Exchange recorded its biggest fall in the last four years (10.11%), and the country’s risk premium reached 2,000 points.

 

As anticipated by Arko Advice in the analysis “The new Casa Rosada guru”, on 20 October, a new economic model is taking shape, characterized by stronger State interference. This would be a way to obtain more domestic support, bury the privatization policies of the Nineties and have more funds to face the short and medium-term challenges brought about by the financial crisis. 

The Argentinean opposition seeks to leverage the government’s loss of control of the country’s agenda to build up strength in next year’s legislative elections. The lead has been taken by Rubén Giustiniani, chair of the Socialist Party (PS). While attending the National Convention of the Radical Civic Union (UCR), the (Peronist) Justicialist Party’s main rival, he proposed creation of so-called “electoral fronts” to fight Kircherism.

 

Giustiani’s proposal was acclaimed by the leader of the Civic Coalition and last election’s runner up, Elisa Carrió. Carrió sympathizes with the idea of rallying oppositionist forces to confront president Cristina Kirchner. However, she said that it will take some time before oppositionists come to unison.

 

Today, Kircherism owns a majority of seats in the Parliament. Cristina’s allies have 153 out of 257 representatives. In the Senate, 44 of a total of 72 seats belong to her partisans. On the other hand, this juncture may change in 2009 elections when the 257 seats in the Chamber of Deputies and one third of the 72 senatorial seats are to be renewed.

 

If they emerge victorious in the upcoming legislative poll, oppositionists still have two years to come up with a nominee who will represent the coalition in the 2011 presidential elections. Today’s key names are the mayor of the autonomous municipality of Buenos Aires, Mauricio Macri, the former Minister of Finance Roberto Lavagna, the Civic Coalition leader, Elisa Carrió, and the Argentinean vice-president Julio Cobos, who has parted ways with Cristina Kirchner.

Meetings held at the Casa Rosada to discuss the implications of the financial crisis upon the domestic economy have fuelled rumors that an economic package is in the making. Measures being considered to fight off the crisis include a competitive exchange rate and the improvement of the trade surplus.

 

Building on these two premises, the Executive Branch will seek greater coordination and control of the State’s neconomic institutions. A reduction in subsidies through increased utility prices is also being entertained. Sources say that president Cristina Kirchner has determined her cabinet chairman, Sérgio Massa, to call for a round table to enter negotiations with those in charge of payment, collection, supervision and control bureaus.

 

These are to be in charge of monitoring the international crisis. Another issue that has brought concern to the Argentinean government, newspaper La Nación has said, are the effects that the depreciation of Real (the Brazilian currency) against the U.S. dollar may have upon the domestic industry, the main actor behind consecutive months of economic growth since 2003.

 

It is never too late to remember that Cristina managed to elect herself president and continue with the agenda of her husband, Néstor Kirchner, because of this economic growth. Her campaigning did not present electors with new promises for the future but rather kept on defending the agenda initiated in 2003.

Ever since challenging President Cristina Kirchner as the retenciones (export tariffs) were being voted, Vice-President Julio Cobos has become the nation’s most popular politician. According to the latest poll by  the Ibarometro Institute, he has a 67% approval rate. Cristina has 30%. As a result, the Vice President emerges as an alternative for the 2011 presidential election.

 

After the last election, in 2007, Cobos broke up with Cristina as he felt excluded from government decisions. In 2008, he had his revenge as Senate president by using his casting vote to defeat a tax bill.

 

Peronists called Cobos a traitor, and Cristina excluded him from official activities. Despite pressures to resign, he is expected to continue. Therefore, the impasse between them tends to continue as well.  

 

Unlike Cristina, Cobos does not have an arrogant image. Also, he forged a good rapport with significant sections of public opinion when he opposed the bill sponsored by the Casa Rosada and became an important player in the election game. 

The US financial crisis is being used as an excuse by Argentine President Cristina Kirchner to justify the economic policy implemented by former president Néstor Kirchner and heavily criticized by analysts and opponents. In a defiant tone, Cristina said that the world’s financial situation has proven that the State plays an irreplaceable role in the economy in any global scenario.

 

To her, the moment has come for “old theories to be put aside”. In her opinion, Argentina is on the right track given that the State is present.

 

Despite the President’s optimistic rhetoric, independent economic analysts are not so certain of this alleged “solidity”. The general assessment by financial experts is that, in a globalized world, it is difficult to say that a given nation is immune from the effects of the current crisis. Therefore, it is too early to predict how the current crisis will affect Argentina.

 

Another controversial issue is the debt with the Paris Club. Even though the government’s commitment to pay it off has been welcomed by international agencies, some argue that the payment should be revised.

 

Theoretically, paying off the debt means easier financing for infrastructure works. However, given the adverse global scenario, it is believed that hardly anybody would lend money under the current situation. 

The Argentinean President, Cristina Kirchner, will make her debut at the UN General Assembly. During her speech, she will focus on how Argentina is safe from the international economic crisis.

 

Basically, this is the aim of her visit in the United States. Yesterday at Nasdaq, Cristina emphasized it on the financial security that Argentina has to offer. She admitted all the difficulties of the past, but strongly guaranteed that the country will keep paying all its debts.

 

When asked about the difference in the inflation announced by the official government agencies (around 8%) and those announced by private agencies (around 25%), she limited her words by saying the true rate is the one presented by the government.

 

For investors sending money to Argentina, this is the key issue to look at. The inflation in the country is severely higher than the rates announced by the government. The lower classes in the country, which traditionally supports Cristina, are already suffering with the mixed information sent by the government related to inflation. If Cristina loses the support of her most loyal electoral base, it will become even harder to administrate Argentina.

With a high debt and no access to international credit, Argentina is yet again experiencing the default shadow, according to information released by foreign banks last week through the local press. “Markets are beginning to ask themselves if the country is on the brink of yet another default”, as stated by a Lehman Brothers circular, under the title of “Argentinean Roller Coaster”.  In its last report, Morgan Stanley stated that the country’s high public expenditure annuls increases in income (Folha).

 
Welcome! Latin America is becoming consistently more important for the world. As the region becomes more stable, the world sees Latin America as a potential business area. In order to understand te potential Latin America has to offer, the world must understand the unique dynamics that the local politics function. This blog already exists in Portuguese since 2005 and is widely read. I believe it can be an important instrument to understand this amazing region. Suggestions, criticisms and opinions are welcome. + learn more

RSS feeds

Podcasts

Popular categories

Keywords

collaborators