BUENOS AIRES Dec 2 Investors are waiting to see who Argentine President Cristina Fernandez names to key cabinet jobs a month after she won easy re-election on pledges to deepen her unorthodox economic policies.
Days after her landslide victory in October, center-left Fernandez rattled savers and companies by announcing a raft of currency measures in a bid to stem capital flight that had accelerated in the run-up to the vote.
Investors bought dollars heavily between August and October on bets the central bank would let the peso depreciate more rapidly after the election. Double-digit inflation is raising industry costs and a weaker peso would boost competitiveness.
A semblance of normality has returned to the currency market over the last two weeks and the central bank has resumed dollar purchasing, helping replenish reserves depleted by months of heavy sales to prop up the peso .
But even if the government has won a first battle against capital flight, economists say it could face a much longer war to avert future dollar outflows being fueled by inflation and nagging political uncertainty.
They say that will depend on Fernandez's policy course over the next four years. Who she appoints to posts such as economy minister and cabinet chief will set the tone for the government to be sworn in on Dec. 10.
During her first term, Fernandez nationalized private pensions and stepped up state control over the grains trade in Latin America's No. 3 economy, which defaulted on some $100 billion in debt a decade ago.
Here are some of the issues investors are watching:
Economy Minister Amado Boudou will become Fernandez's vice president in her second term, leaving his job open. Among those tipped to succeed him are Finance Secretary Hernan Lorenzino, a low-profile technocrat who would be favored by financial markets and the banks, and central bank chief Mercedes Marco del Pont. Manufacturing industry leaders are said to prefer Marco del Pont, who shares the president's pro-industry views. Industry Minister Debora Giorgi and Juan Carlos Fabrega, head of the state-run Banco Nacion, are also seen as contenders for Boudou's job.
There is also close interest in whether Fernandez keeps controversial price watchdog Guillermo Moreno in his job at the Domestic Commerce Secretariat. Moreno routinely uses arm-twisting tactics to reach price accords and more recently he has been a key figure in government efforts to control the foreign exchange market.
Like Moreno, powerful Planning Minister Julio De Vido passed to Fernandez's team from that of her late husband and predecessor as president, Nestor Kirchner.
Agriculture Minister Julian Dominguez, who was elected to Congress, will also be replaced and a high-level ministry source said little-known Fishing Undersecretary Norberto Yahuar will succeed him.Long-running tensions with farmers eased during Dominguez's tenure.
What to watch:
- Economy minister's appointment and signs of whether it is a more market- or industry-friendly choice.
- Cabinet chief and planning ministry, agriculture ministry jobs, important posts for farming and industry.
Ten years after staging the biggest sovereign debt default in history, Argentina has yet to resume global debt sales.
The 2012 budget bill, which Congress is expected to approve, earmarks the use of billions of dollars in central bank reserves to repay debt for a third consecutive year.
Heavy dollar sales by the monetary authority since August have eroded the so-called excess reserves available for debt repayment, raising questions about state finances at a time of a worsening global outlook and lower grains prices.
Heavy Treasury borrowing from other state bodies such as the Anses pensions agency is also likely to continue and Boudou has said the government can meet its financing needs without having to sell bonds at high rates.
State spending has grown at an annual rate of about 40 percent in recent months, outpacing tax revenue growth and eroding the government's prized primary budget surplus.
That would give Fernandez less firepower for counter-cyclical spending if a long boom runs out of steam. A sharp deterioration in the economy's health might prompt fresh measures to boost revenue or shield the trade surplus.
In a sign Fernandez is concerned about the ballooning bill for state utility subsidies, she has taken a few steps toward cutting them for large companies and high-income residential users.
Further cuts could carry a high political cost and Fernandez will want to avert a backlash early in her second term and as the economy slows.
What to watch:
- Further moves to boost dollar supplies, stem outflows.
- Any sign of slower spending in next few months and further subsidy cuts or popular discontent over higher bills.
- Progress on $9 billion Paris Club debt repayment deal.
- New economy minister's position on issuing new debt.
- Foreign reserves and implications for state financing.
INFLATION, PAY DEMANDS
Argentina's central bank has no inflation-targeting regime and the government uses company price accords and export curbs to try to ensure basic goods are affordable.
Fernandez rarely acknowledges inflation that is estimated privately at more than 20 percent, but government officials have called for moderation from the unions in the next round of annual pay talks in early 2012.
Some union leaders have indicated they will not accept caps on wage demands, setting the scene for tense salary negotiations in the new year. Further signs of strain in the government's relationship with powerful union leader Hugo Moyano could raise the risk of labor unrest.
Argentina's official inflation data has come in way below private forecasts since early 2007, when Nestor Kirchner removed long-serving staff at the consumer price unit.
Statistics officials are working with the International Monetary Fund to design a new, nationwide consumer price index that should be up and running by early 2014, but few economic analysts expect Fernandez to make restoring credibility to the data a priority.
Fernandez is not expected to become a fierce inflation-fighter but her calls to the unions and initial subsidy cuts suggest she is concerned about price pressures.
What to watch:
- Comments from union leaders on wage hike expectations.
- Fernandez's ties with Moyano, who faces re-election at the CGT labor federation next year.
- Slowdown in public spending that could cool prices.
- Choice of economy minister and his or her stance on inflation.
- Any depreciation of the peso, which could further stoke inflation, or fresh measures to prop it up.