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Key political risks in Argentina

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Key political risks in Argentina

President Cristina Fernandez is seeking re-election and polls show she could take victory in the first round on Oct. 23, helped by brisk economic growth and a splintered opposition.

But recent regional elections have gone worse than expected for the government, leading many to wonder if Fernandez’s re-election is still a sure thing.

The 58-year-old leader vows to deepen the leftist policies that have infuriated many business leaders and farmers in Argentina, Latin America’s No. 3 economy and a major world grains exporter. [ID:nN1E75K213]

Here are some of the main issues investors are watching:

Election Campaign

Fernandez’s rivals will try to exploit vulnerabilities such as high inflation and her long-standing feud with the farm sector. But unless the opposition unifies around a single figure by election day, she is widely expected to win a second four-year term. [ID:nN1E76S0FR]

Fernandez has billed her candidacy as a tribute her late husband and predecessor as president, Nestor Kirchner, who died late last year. [ID:nN27225050]

Analysts expect few changes to Fernandez’s interventionist and unpredictable policy-making if she is re-elected, although she could be forced to make some adjustments.

The government got a shock in late July when the ruling-party candidate finished a surprisingly distant third in the governor’s race in Santa Fe province, home to Argentina’s vast soy-processing industry. [ID:nN1E76N0EN]

A week later the government received another slap from voters when Buenos Aires mayor Mauricio Macri won re-election, beating Fernandez’s candidate by nearly 30 percentage points and raising doubts about her invincibility in October. [ID:nN1E76U0H8]

Macri’s victory was expected and Fernandez’s re-election bid may not suffer much damage from the recent votes, but farmers will keep pressing her to scrap policies such as quotas and taxes that the government places on some grains exports.

Growers say the measures are hurting profits and frightening off investment in the sector at a time when it should be booming along with world food demand.

Betting that a Fernandez victory in October will mean a slightly steeper depreciation of the peso ARSB=, investors are putting more money into dollar-denominated bonds and American Depositary Receipts (ADRs) as the vote draws closer.

Financial markets had largely factored in Fernandez’s expected re-election bid and her decision to name her economy minister, Amado Boudou, as her vice presidential candidate did not impact Argentine asset prices. [ID:nN1E75O06V]

Fernandez has support of about 40 percent and a lead of at least 20 points over her nearest rival, centrist congressman Ricardo Alfonsin, in polls. That points to her being re-elected in the first round and averting a riskier run-off. [ID:nN1E75M0QI]

Under Argentina’s electoral system, candidates can win in a first round with 40 percent of the vote if the second-placed candidate trails by at least 10 points. Support of 45 percent guarantees a first-round victory.

Argentine politics are notoriously volatile, however, and less than four months from polling day, the president’s easy election for another four years cannot be guaranteed.

Some analysts say her popularity has taken a hit from a corruption scandal at prominent human rights group Mothers of the Plaza de Mayo, which has close government ties.

Still, even if she loses several points of support over the coming months, she will only be at serious risk if her rivals can unite behind a single candidate and mount a convincing challenge.

Alfonsin has stitched up an alliance with dissident Peronist lawmaker, Francisco De Narvaez, who is popular in the key electoral district of Buenos Aires province.

Other opposition efforts to forge strategic pacts have failed, however. Hermes Binner, the Socialist governor of Santa Fe province, has launched his own candidacy after talks with Alfonsin broke down. Binner’s candidacy is seen stealing votes from both Fernandez and Alfonsin, as well as center-left congresswoman Elisa Carrio.

Some trade union leaders and old-school Peronist leaders are said to be unhappy with the ruling party’s electoral lists, saying they have been passed over in place of young pro-government loyalists in the La Campora group founded by her son, Maximo Kirchner.

Changes post-Kirchner

There have been signs of increasing strains in relations between Fernandez’s government and powerful union leader Hugo Moyano since Kirchner’s death.

Although he has voiced support for her re-election bid, Moyano wanted greater representation for union figures in the government and on lists of electoral candidates. Boudou is an acceptable vice presidential candidate for the unions, but Moyano would have liked Fernandez to choose a figure directly linked to his CGT labor confederation.

Emboldened by the opinion polls, Fernandez seems more willing to challenge the government’s traditional alliances.

She has been forging closer ties with non-Peronist center-leftists such as congressman Martin Sabbatella as well as members of the La Campora youth group.

Many supporters from the ranks of La Campora will run as ruling party candidates on Oct. 23.

After some initial signs that she might be more pragmatic following the death of her combative husband, Fernandez has increased pressure on the private sector this year — ordering businesses to cap prices, fining economists over their independent inflation forecasts and moving to increase the state’s presence on company boards. [ID:nN13300029]

She has also imposed new import obstacles on manufactured goods and forced carmakers to cut their trade deficits, leading some to export goods from wine to biodiesel.

Inflation and Finances

High grain prices and strong demand from Brazil underpin the strength of the Argentine economy, but economists warn that surging consumer prices are becoming entrenched — leaving a tricky legacy for the next government.

Public spending is up more than 30 percent from last year, highlighting steep wage hikes and Fernandez’s decision to prioritize growth despite rising inflation ARCPI=ECI, estimated by analysts at above 20 percent annually.

Hefty growth in tax revenue and social security contributions have allowed her to raise pensions and child welfare benefits and she has continued to tap central bank reserves to service the public debt.

Source: Helen Popper | Reuters

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