GLOBAL MARKETS-Dollar, stocks inch up as US healthcare vote back on
* Healthcare vote likely later Friday, to test reflation trade
By Helen Popper
BUENOS AIRES Oct 23 Argentine President Cristina Fernandez is expected to win easy re-election for another four years on Sunday, a result that would give her a strong mandate to deepen her unorthodox economic policies.
Unconventional and sometimes controversial measures such as beef export curbs and the sudden takeover of private pensions please many Argentines but they are generally unpopular with investors, pro-market business leaders and farmers.
With her re-election almost certain, attention has turned to what reforms Fernandez could consider in a second term. Much will depend on the impact of a worsening global outlook on Latin America's No. 3 economy.
Here are details of her policies and possible reforms:
Argentina is one of the world's top grains suppliers and tensions over interventionist agricultural policies overshadowed Fernandez's first term. Some farm leaders fear she could boost the state's role in the multibillion grains trade, especially if an economic slowdown squeezes state finances.
However, the conflict with farmers has eased since growers staged a wave of strikes in 2008 over a tax hike on soy exports and the government has been more conciliatory in recent months as it courts the rural vote. Fernandez scrapped the unpopular ONCCA agency in charge of overseeing grains exports and some analysts think she could back a proposal to overhaul corn and wheat export quotas -- a major gripe of farmers.
The proposal does not have the support of all farmers and some industry figures still fear Fernandez might move to take over the export trade by establishing a state grains board. Officials have denied such a plan.
She is also pushing for a law to limit land sales to foreigners, a proposal that is languishing in Congress. A strong showing on Sunday would make it easier for her to get the measure approved.
Fernandez's fortunes in a second term could hinge on her success in keeping people in jobs and ensuring exports are competitive as inflation drives up production costs and key trade partners' currencies depreciate.
The 2012 budget bill sees the peso weakening against the dollar next year but economists are forecasting a steeper depreciation to bolster local industry's sales.
Besides the managed-float exchange rate policy, Fernandez has imposed a series of import barriers that have riled key trade partners Brazil and China. More recently, car makers agreed to match imports with exports in a bid to boost the domestic parts industry and a shrinking trade surplus. Most analysts expect such measures to be intensified.
Pay talks early next year will be closely watched for signs the government is committed to cooling wages that are rising at an annual rate of almost 30 percent. Officials have called for moderation and business leaders say limiting pay raises is crucial to maintaining their competitiveness.
Ten years after staging the biggest sovereign debt default in history, Argentina has yet to return to global credit markets. Economy Minister Amado Boudou, Fernandez's running-mate, says the government can meet its financing needs without having to sell new debt at high rates. The 2012 budget bill earmarks the use of billions of dollars in central bank reserves to service public debt for a third consecutive year. Heavy Treasury borrowing from other state bodies such as the Anses pensions agency is also likely to continue.
However, economists say a possible slowdown next year might prompt the government to sell up to $3 billion in new debt as a way to maintain public spending. Another option would be to let the peso depreciate more rapidly, freeing up more reserves and bolstering revenue in pesos, although that might fan inflation and capital flight that has snowballed in recent months.
The government's financing gap would increase if it starts repaying the nearly $9 billion the country owes the Paris Club of wealthy creditor nations, one of the last unresolved remnants of the $100 billion default in 2002. Talks on a repayment plan have stalled and a worsening financing outlook might discourage Fernandez from hurrying a deal.
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.
Financial markets are watching for efforts to restore credibility to official inflation data. The numbers have come in way below private forecasts since early 2007, when Fernandez's late husband and predecessor as president, Nestor Kirchner, fired long-serving staff at the consumer price unit.
Statistics officials are working with the International Monetary Fund to design a new consumer price index that should be up and running by early 2014. It is unclear whether the roughly quarter of Argentine bonds that are inflation-indexed would be based on the new index and whether it will be any closer to private estimates.
Fernandez is not expected to become a fierce inflation-fighter but she could cool spending a bit and encourage unions to ease wage demands to contain pressures.
Argentina's constitution allows presidents two consecutive four-year terms, meaning Fernandez would not be able to seek re-election in 2015. Following Kirchner's sudden death a year ago, she has no clear successor, which could unleash power struggles in her notoriously fractious Peronist party. That has fueled opposition-led speculation that she might seek to follow in the footsteps of Latin American leaders, such as Venezuelan President Hugo Chavez, who reformed their countries' charters to allow themselves to run again. Government officials have rejected such ideas and any reform bill would need two-thirds support in Congress to be passed, meaning it would be difficult to push through.
Almost a decade of rapid economic expansion and slack investment in exploration are straining Argentina's energy resources. That is forcing the government to import more fuel, eroding the trade surplus and increasing the burden of hefty state subsidies for industry and residential users.
In 2005, subsidy payouts accounted for less than 5 percent of primary state spending. Five years later, that figure topped 12 percent, according to private estimates. Analysts say that makes energy subsidies a likely target if the government moves to rein in public spending that has been growing at an annual rate of more than 30 percent this year. Putting the brakes on public spending will be a bigger priority if global economic conditions hit the economy.
Some new energy projects are coming on line. This combined with the discovery of a huge shale gas deposit in Patagonia has raised hopes that Argentina could regain energy independence.However, energy projects take years to bring into operation and analysts say persistent political uncertainty is a deterrent to hefty, long-term investment.
The government has courted investment in mining since 2003 and production has taken off despite fierce opposition from environmentalists and a series of provincial bans that have blocked key projects. Metals currently face export taxes of 5 or 10 percent, but tight state finances and high global prices might prompt a hike. Mining exports reached $5.4 billion in 2010, still small compared with soy exports of $17.3 billion.
* Healthcare vote likely later Friday, to test reflation trade
* BOJ kept policy steady this month, eyeing underlying inflation