| BUENOS AIRES, Sept 1
BUENOS AIRES, Sept 1 Political tensions are
bubbling up in Latin America's No. 3 economy as President
Cristina Fernandez and her rivals grapple to seize the
initiative ahead of next year's presidential election.
Doubts over state finances have eased due to robust growth,
a bumper grains harvest and the completion of a $12.3 billion
bond restructuring that aimed to clean up lingering damage from
a massive 2002 debt default and pave the way to sell new debt.
Opposition proposals in Congress to hike pensions and cut
controversial taxes on grains exports would strain the budget
and could trigger a controversial presidential veto.
A recent hardening of the government's criticism of the
Grupo Clarin (CLA.BA) media conglomerate has soured an already
tense relationship with big business, setting the tone for a
testy pre-election year.
Here are some of the issues investors are watching:
Argentina's fragmented opposition has failed so far to form
a united front against the government despite winning control
of Congress in last year's mid-term election.
There are signs they are getting organized, such as the
drive to hike pensions, but so far they have failed to slow a
steady recovery in the government's approval ratings.
Fernandez's popularity hovered around 20 percent after last
year's mid-terms, but a brisk economic recovery has lifted it
to at least 35 percent, pollsters say. That would help her
husband, Nestor Kirchner, who preceded her as president and is
expected to run for a second term next year. [ID:nN04144810]
What to watch for:
-- Signs of a sustained rebound in the government's
popularity would boost Kirchner's chances of returning to the
presidency in the 2011 election.
-- Polls show President Fernandez has higher approval
ratings than her husband. A deepening of that trend might
encourage the presidential couple to seek her re-election
rather than his.
-- The emerging field of alliances and any signs of
opposition challengers who might be able to take on Kirchner.
CONFLICT WITH BUSINESS
Business leaders are increasingly speaking out against
Fernandez's administration as her escalating row with
Argentina's top media group Clarin ruffles markets and sharpens
political divisions. [ID:nN30274780]
Fernandez has been at odds with the Clarin group for two
years. But she stepped up her drive against the conglomerate
last week by accusing its leading newspaper, Clarin, and
competitor La Nacion of plotting with the military junta to buy
leading newsprint supplier Papel Prensa (PPR.BA) in 1976.
Just a few days earlier, the government stripped the
operating license from Clarin's Internet provider Fibertel.
[ID:nN19221275] A blockade by truck drivers of the steelmaker
Ternium Siderar (SID.BA) worsened the mood among big business.
What to watch for:
-- Any signs the tensions with big business are affecting
the government's approval ratings.
-- Impact on investment inflows and on debt and currency
-- Challenges to government plans from courts or Congress.
-- Involvement of any pro-government trade unions, such as
the truck drivers, in strikes or protests.
Inflation ARCPI=ECI has surged as the economy rebounds
from last year's sharp slowdown, and private forecasts put the
annual rate at 20 percent or more, far above official estimates
and fueling pay demands. [ID:nN13206766]
Many trade unions have secured hefty annual pay rises in
recent months, easing a wave of strikes and labor protests, and
a recent hike in pensions and child benefits could soften the
impact of soaring food prices on the poor. [ID:nN28180590]
But political analysts say inflation remains the
government's Achilles heel as it tries to shore up backing
among the urban poor, its key support base.
Brisk public spending is not expected to slow and this
combined with an expansive monetary policy are seen stoking
inflation to between 25 percent and 30 percent by year-end.
Controversy over consumer price data continues despite
pledges by Economy Minister Amado Boudou to restore credibility
to the figures.
What to watch:
-- Fresh government income-boosting measures that could
prove inflationary, such as tapping credit markets to allow
higher social spending as the election nears.
-- Further loosening of the central bank's money supply
-- Congress may approve an opposition-led bill to reform
the questioned INDEC national statistics agency.
Tax revenue is picking up quickly following last year's
slowdown, growing at rates of nearly 40 percent in recent
months year-on-year, but public spending is also growing
rapidly and is unlikely to ease as the election draws closer.
Argentina's completion of the long-awaited debt swap has
boosted investor appetite for sovereign bonds, although the
government has not yet issued a $1 billion bond as originally
Boudou has said repeatedly the government will wait until
market conditions are right. [ID:nN11261547]
Opposition lawmakers are pushing several measures that
would hit state finances and their drive to grab the political
initiative could gather speed as voting draws nearer.
Opposition legislators also want to cut grains export
levies, which account for about 10 percent of state revenue.
What to watch:
-- Global risk appetite and whether yields fall low enough
to encourage a new bond sale.
-- A possible debt swap to extend maturities coming due in
the run-up to the 2011 election.
-- Creative government accounting to maintain the primary
budget surplus, which measures public accounts before debt
payments and which widened 54 percent year-on-year in the first
half of the year. [ID:nN21264164]
-- The term of Central Bank President Mercedes Marco del
Pont expires on Sept. 23. Fernandez is expected to nominate
Marco del Pont, a close ally who backs using foreign reserves
to pay debt, for a second term but Congress must confirm her.
-- Approval of the opposition's pensions bill, or export
tax cuts, and possible presidential vetoes.
-- Any steps by the government to open talks over the
roughly $7 billion owed to the Paris Club group countries.
(Editing by Kieran Murray)
(firstname.lastname@example.org; +54 11 4318 0655; Reuters