FACTBOX-Key political risks to watch in Argentina

BUENOS AIRES, April 4 Mon Apr 4, 2011 12:48pm EDT

Related Topics

BUENOS AIRES, April 4 (Reuters) - Argentine President Cristina Fernandez has a hefty poll lead as October's presidential election draws closer, but simmering power struggles among her allies may help a splintered field of rivals gain traction.

As Latin America's No. 3 economy booms, Fernandez's approval ratings are steady at about 50 percent while opponents scramble to forge electoral pacts strong enough to mount a convincing challenge. [ID:nN17108645]

The center-left leader is keeping voters guessing about whether she will seek a second term following the death last year of her powerful husband and predecessor, former President Nestor Kirchner, but a re-election bid is widely expected.

Kirchner's death sent Argentine bond and stock prices higher as investors bet the couple's time in power was coming to an end, clearing the way for a more business-friendly government to be elected in 2011. [ID:nN29175687]

But Fernandez's robust popularity ratings and signs she is stepping up pressure on the private sector and shifting more to the left could rattle asset prices as voting nears.

A strike call last month by the country's most powerful union leader, a government ally, sent jitters through local financial markets. The strike was called off, but the episode raised the specter of unrest and political tension.

Here are some of the main issues investors are watching:

ELECTION BUILD-UP

Some polls conducted since Kirchner's death on Oct. 27 have suggested Fernandez could win in a first round, especially because no single, strong opposition candidate has emerged.

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

Fernandez's healthy poll ratings, coupled with the strong showing of pro-government candidates in provincial elections in Catamarca and Chubut, has raised expectations that she will announce her candidacy by the end of June. [ID:nN14142490]

Kirchner battled behind the scenes to shore up his wife's support among the Peronist party kingpins that are seen to hold the keys to power, especially the mayors of the densely populated Buenos Aires outskirts and powerful trade unionists.

His wife has changed tack, however, forging closer ties with non-Peronist center-leftists such as congressman Martin Sabbatella and distancing herself from Daniel Scioli, the moderate Peronist governor of Buenos Aires province.

What to watch for:

-- Fernandez's poll ratings and signs of opposition rivals closing the gap. [ID:nN07284521]

-- Outcome of opposition parties' early primary elections, which could help define main challengers.

-- Any sign of a potentially stronger opposition alliance emerging, such as a pact between Buenos Aires Mayor Mauricio Macri and the dissident Peronists.

CHANGES POST-KIRCHNER

Fernandez also appears to be putting more space between herself and another Peronist heavyweight -- the country's most-powerful union leader, Hugo Moyano, who Kirchner allowed to amass more and more power. [ID:nN22178023]

The surprise call for a truck drivers' strike last month, announced by Moyano's allies after he was linked to a Swiss money-laundering probe, was the strongest sign yet that the relationship has soured since Kirchner died six months ago.

Moyano, who heads the CGT labor federation, backed down in the end, averting a potentially crippling strike.

But tensions could flare up again as unionists pressure Fernandez to include more of them on ruling-party tickets or even accept a union figure such as congressman and CGT legal adviser Hector Recalde as her running mate in October.

Recalde presented a bill to Congress last year that would force companies to share profits with employees and he says he hopes the proposal can be debated soon.

After some initial signs 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 and fining economists over their independent inflation forecasts. [ID:nN02227216]

Fernandez is said to be taking increasing note of the advice of leading members of the La Campora youth group, set up by the Kirchners' son Maximo, while more traditional Peronists such as cabinet chief Anibal Fernandez have lost influence.

What to watch for:

-- Following recent abolition of the ONCCA farm trade agency, any other surprise moves that might rankle grains growers in the key agricultural sector. [ID:nN25281636]

-- Tensions with Moyano and strike risks during pay talks.

-- Unfolding electoral pacts and signs Fernandez thinks she can win without traditional Peronist power base.

INFLATION AND FINANCES

High grains prices and brisk demand from neighboring Brazil are cushioning the Argentine economy, but economists warn that surging consumer prices are becoming entrenched -- leaving a tricky legacy for the next government.

Public spending is growing at a rate of more than 30 percent, highlighting Fernandez's decision to prioritize growth despite inflation ARCPI=ECI, estimated by analysts at about 25 percent. [ID:nN10179577]

Hefty tax revenue growth has allowed her to raise pensions and child welfare benefits, measures that could help bolster her support among the poor, and she has continued to tap central bank reserves to service the public debt.

However, economists say loose fiscal and monetary policies make rising prices ever harder to contain, raising the appeal of imports due to the nominally stable exchange rate ARSB=, eroding purchasing power and fueling pay demands that could raise the risk of strike action.

The government has expanded the use of import permits to try to keep the trade surplus from shrinking further and safeguard foreign currency inflows. But Argentina's disgruntled trading partners could retaliate. [ID:nN09298892]

What to watch:

-- Ongoing wage negotiations and strike threats in sensitive industries such as the grains export industry, though several key unions have already agreed to wage hikes.

-- Further import curbs to shield shrinking trade surplus.

-- Paris Club debt negotiations and any sign talks are deadlocked as Economy Minister Amado Boudou focuses on race to be the next mayor of Buenos Aires. [ID:nN08209408] (Writing by Helen Popper, editing by Anthony Boadle)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.