Argentina’s Model Victory Stance
Argentina’s bond and stock markets continued at the rear of benchmark indices as President Fernandez took a second term in a landslide and regained full parliamentary control, with triple the percentage vote of the runner-up. The outcome largely mirrored the earlier national primary after opposition parties had shown strongly in state races. A challenge from the son of former President Alfonsin faded as his party could not attract anti-incumbent allies and lacked a clear economic alternative vision and power of the purse to dispense largesse. During the campaign key unions got a 30 percent wage hike, above the privately-estimated inflation figure double the official 10 percent. A dozen consultants who have circulated the higher number face heavy fines under application of loosely-related consumer protection laws, with a handful under outright criminal indictment for “financial speculation.” An attempt to devise an updated index with IMF technical help, based on prices outside Buenos Aires, has foundered on residual bad blood between the government and multilateral lender, which ended its adjustment program a decade ago prompting a record $100 billion external debt default. The cases are likely to be pressed harder with the overwhelming margin by the administration ticket which tapped former finance minister Boudou as vice-president. A crackdown on informal currency trading with the parallel market premium is also expected, as it undermines the central bank policy of gradual peso depreciation to aid exports and facilitates capital flight which is running at a $20 billion-plus annual clip outstripping the trade surplus.
International reserves are below $50 billion on the outflow and regular interventions, and another $5 billion is earmarked for commercial bond repayment in 2012 from the re-opened swap. Twice that amount is still owed to “holdouts” from the 2010 deal according to US Securities Commission filings, and Paris Club outstanding obligations come to $9 billion with negotiations on hold. With these lingering issues the Treasury Department in Washington has been ordered to vote against future development bank support for the country which has a large poverty profile that serves to justify energy and transport subsidies. While corporates have again tapped overseas markets, a sovereign return, although hinted at for infrastructure projects, will be difficult as funds seek “attachment” relief for state assets in US and European courts to honor untendered bonds. In New York a judge has regularly sided with plaintiffs and bemoaned official behavior, while the BIS in Switzerland has itself been subpoenaed to explain its possession of Argentine reserves. GDP growth will be lower at 5 percent next year, and Chinese trade and investment interest which has been hyped as a regional and western substitute may also languish as the tired Kirchner-Fernandez model enters its second decade.
