FACTBOX-Key political risks to watch in Argentina

BUENOS AIRES Mon Oct 3, 2011 10:15am EDT

BUENOS AIRES Oct 3 (Reuters) - President Cristina Fernandez looks set to win easy re-election this month, giving her a strong mandate to deepen the unorthodox policies that irk many farmers, business leaders and Wall Street economists.

The center-leftist president won more than 50 percent in a primary election in August and opinion polls suggest she has widened her massive lead over a fragmented field of opposition candidates. [ID:nS1E78D0C4]

With the Oct. 23 election looking like a foregone conclusion, investors are turning their attention to whether Fernandez will intensify her unpredictable, interventionist economic policies in a second four-year term.

Measures such as the nationalization of private pensions and heavy-handed intervention in the grains trade have rattled investors in Latin America's No. 3 economy, a major global food supplier that has yet to return to capital markets nearly a decade after it defaulted on some $100 billion in debt.

That makes Argentine asset prices sensitive to heightened global risk aversion and investors have been selling bonds <AR/BONOS> and stocks .MERV heavily in recent weeks.

Fernandez, 58, bills her candidacy as a tribute to her late husband and predecessor, Nestor Kirchner, who died a year ago and who many Argentines credit with putting the nation on its feet after the 2001/02 economic crisis and default.

A weak opposition, brisk economic growth of about 9 percent per year and Fernandez's ability to build on public sympathy over Kirchner's death underpin her high approval ratings.

Here are some of the issues investors are watching:

PRESIDENTIAL ELECTION

Opinion polls carried out since the August primary vote have suggested Fernandez could get even more support.

In the primary, Fernandez came in 38 percentage points ahead of her two closest contenders, centrist Radical party congressman Ricardo Alfonsin and former President Eduardo Duhalde, a dissident member of the ruling Peronist party.

They both got 12 percent of the vote, suggesting the presidency is out of sight. Some opposition candidates have already shifted their focus to winning seats in Congress. [ID:nN1E77L0NZ]

August's primary was effectively a nationwide opinion poll because the parties had already chosen their candidates and voters could cast ballots for any of them. [ID:nN1E77E00L]

A poll conducted last month by local pollsters Management & Fit put Fernandez's support at 51.9 percent, with Socialist candidate Hermes Binner in second place with 11.6 percent.

Under Argentina's electoral system, presidential 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 or more guarantees a first-round victory.

If the primary result is repeated on Oct. 23, Fernandez would win back control of Congress with the help of allies.

Even a strong showing by Fernandez in October will not quell speculation over who will succeed her in 2015, although some commentators have suggested she might try to reform the constitution and run for a third term. Her allies deny this.

What to watch:

-- Size of Fernandez's victory and what it means for her control of Congress.

-- Who emerges as strongest opposition figure.

-- Hints over possible cabinet make-up, especially key economy, agriculture and planning ministry posts.

POLICY IF FERNANDEZ WINS

Fernandez is widely expected to maintain her current policy course if she is re-elected, although she could be forced to make some adjustments to address increasing signs of strain, especially if the global outlook deteriorates. [ID:nN1E75L0A7]

One of Fernandez's biggest headaches could be maintaining the competitiveness of Argentine industry as annual inflation estimated privately at more than 20 percent erodes the advantage of a nominally weak peso. ARSB=

Fernandez has pursued a managed-float exchange rate policy and most economists expect the central bank to allow a faster rate of depreciation after the election. Persistent depreciation of neighboring Brazil's currency BRBY could intensify industry calls for a weaker peso after the election.

Primary spending and money supply are growing at annual rates of more than 35 percent, stoking consumer activity but also fueling inflation and wage demands.

The government's prized primary budget surplus and trade surplus have also narrowed, giving a second Fernandez administration less firepower for counter-cyclical spending and for paying debt out of foreign reserves. ARPBS=ECI

A slump in global commodities prices or Brazilian demand for Argentina's manufactured goods would exacerbate the situation, possibly prompting a hardening of current unorthodox measures and pressure on the private sector.

That might mean intensified import substitution -- forcing companies to balance exports and imports -- or unexpected steps to bolster state finances similar to the pensions takeover.

One area where she might be willing to make cuts are mounting transport and energy subsidies. [ID:nN1E76I1FO]

What to watch:

-- Progress of the government's 2012 budget bill through Congress and details of financing plans. [ID:nS1E78I225]

-- Any movement on bill to limit land sales to foreigners.

-- Signs global outlook could force adjustments.

-- Hints of farm policy concessions such as reforms to unpopular corn and wheat export curbs. [ID:nS1E78L066]

INFLATION AND FINANCES

Argentina's official inflation data has come in way below private estimates since Kirchner replaced staff at the INDEC statistics agency with allies in 2007. ARCPI=ECI

The low-balling of price data is a big gripe of Wall Street economists and the government plans to unveil a new nationwide price index by late 2013 or early 2014 to try to restore credibility to the once-respected INDEC. [ID:nN19257167]

A landslide victory this month would strengthen Fernandez's hand in dealings with powerful union bosses such as Hugo Moyano, but persistent inflation could fan wage demands and social and labor protests early in a second term.

The government plans to tap foreign reserves to pay debt for a third year in 2012, but capital flight and a shrinking trade surplus could make that more difficult. [ID:nS1E78B0XT]

The government continues with efforts to mop up lingering fallout from the 2002 default, clearing its way for a possible return to credit markets. One remaining hurdle is repayment of the roughly $9 billion Argentina owes to the Paris Club of wealthy creditor nations, something the government hopes to agree before year-end.

Some economists say the government may have to turn to the markets next year or let the peso depreciate more sharply to meet its financing needs as its fiscal accounts worsen and excess foreign reserves dry up. [ID:nN1E76S11U]

But selling debt would likely be a last resort if borrowing from state agencies or using reserves were impossible.

What to watch:

-- Falling reserves and implications for state financing.

-- Tax revenue and fiscal deficit in case of slowdown. (Editing by Kieran Murray)

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