| BUENOS AIRES, April 17
BUENOS AIRES, April 17 Argentine President
Cristina Fernandez is reversing some of the populist policies
that defined her first six years in power and will have little
choice but to stick to the new, more pragmatic path over the
remaining 20 months of her final term.
Confronted by falling dollar reserves, a weak economy and
high inflation, Fernandez has in the past three months cut
heating gas subsidies and let the peso devalue by 18 percent.
She has revamped shoddy official inflation reporting and
agreed to pay Spain's Repsol $5 billion for the 2012
nationalization of oil company YPF.
Investors long put off by Fernandez's antagonism toward big
business are interested in Argentina again and hoping that more
prudent government spending could bolster reserves and slow one
of the world's highest inflation rates.
The policy changes have helped fuel a 19 percent rise in
Argentine stocks so far this year and a 9.5 percent
rally in local bonds that analysts expect will continue through
If Fernandez's government follows up with more changes it
could put the economy on firmer ground for whoever succeeds her
as president late next year. All of the most likely candidates
have more orthodox economic policies than those pursued by
The more she cuts subsidies and allows the currency to
devalue, the less painful the reform process will be after she
"What's not clear is whether she wants to do a full fiscal
adjustment or just what's necessary to get through her term
without a crisis," said Mariel Fornoni, a pollster with the
Management & Fit consultancy.
Up until late 2013 Fernandez vowed to never devalue the peso
or adjust fiscal policy, saying "that way lies chaos."
Her government is playing down the recent policy shift and
refuses to say what might come next.
Asked by Reuters this week how far the reforms will go,
Economy Minister Axel Kicillof, a Marxist academic, shot back:
"In the first place, there have been no reforms. We are not
committed to specific policies, but to specific goals ... such
as increasing production, employment and the income of our
citizens while decreasing inequality."
"These objectives support internal demand and the export
sector ... which in turn benefits foreign companies operating in
the country," he said, abruptly ending a news conference.
Some business leaders are convinced the government has no
choice but to move further away from the economic model of the
last few years.
"We saw quite a few policy changes in the first quarter and
expect to see more, including more devaluation of the currency,
because they don't have a choice," said an executive with a
foreign company with more than a billion dollars invested in
Argentina, but who asked not to be identified.
"They held off for a long time, but now they are running out
of money and need foreign investment," the executive said.
POPULISM'S RISE AND FALL
Since winning the presidency in 2007, Fernandez has used
central bank reserves to finance heavy government spending. That
worked while there was plenty of money coming in and Argentina's
economy was still rebounding from its 2002 sovereign default.
But inflation is now running at around 30 percent, growth is
weak with many analysts expecting a recession by the end of this
year, and central bank reserves are down more than 30 percent
over the last 12 months to just $27.7 billion.
"Argentina's problems start and end with its loose fiscal
policy," said Patrick Esteruelas, sovereign strategist at
London-based hedge fund Emso, which has $2 billion under
He said the government will be helped by an expected record
soy harvest over the next two months, and that it could take
extra pressure off reserves if it follows the recent policy
changes further spending cuts, including a reduction in
"The soy harvest provides a window of opportunity for the
government to continue taking more aggressive corrective
measures ahead of the negative seasonality of the second half,"
Esteruelas said. "The jury is out as to whether they will use
this window of opportunity adequately."
Energy and transportation subsidies last year amounted to 5
percent of gross domestic product. Generous state spending had
bolstered Fernandez's popularity and helped her easily win
re-election in 2011 but economic woes started hitting her
popularity over the last two years.
Her approval rating has dropped to around 25 percent,
according to a recent Management & Fit poll. That slide and
growing fears of a new economic crisis were key factors behind
the recent policy changes.
Fernandez is barred by law from seeking a third term in the
October 2015 election, and she has not yet thrown her support
behind any of the likely candidates.
Possible candidates include Buenos Aires Governor Daniel
Scioli, a Wall Street favorite, and Sergio Massa, a former mayor
of Buenos Aires suburb Tigre who has put battling inflation at
the top of his agenda.
The election line-up has fueled optimism of deeper and
longer-term policy changes aimed at boosting investment,
especially in the potentially huge Vaca Muerta shale oil and gas
field in Patagonia.
Chevron Corp last week doubled down on its
investment in Vaca Muerta, saying it and YPF plan to spend an
extra $1.6 billion on new wells and exploration projects.
(Editing by Kieran Murray)