BUENOS AIRES, Oct 1 (Reuters) - Argentine opposition leaders are working to sew up political alliances as sizzling economic growth bolsters support for President Cristina Fernandez a year from the next presidential election.
Doubts over state finances have eased due to the economy's recovery, a bumper grains harvest and the completion of a $12.3 billion bond restructuring to clean up the damage from a massive 2002 debt default.
The brighter financing outlook and the government's plan to tap even more from foreign reserves to pay debt next year have tightened Argentine debt spreads, although analysts say brisk public spending and consumer demand is stoking inflation.
Fernandez's rivals have vowed to block the 2011 budget bill in Congress, but that would mean she could continue to use the previous year's budget law and theoretically sign decrees to tap the central bank reserves.
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 some recent signs they are getting organized, such as working to block the 2011 budget bill and forge electoral alliances, but so far they have failed to slow a steady recovery in the government's approval ratings. A series of opposition-led initiatives -- such as a bill to hike pensions -- are languishing because the ruling party has been able to block their advance in the Senate.
Fernandez's popularity hovered around 20 percent after last year's mid-term elections, but the economic rebound has lifted it to at least 35 percent, pollsters say.
That helps her husband, Nestor Kirchner, who preceded her as president and is expected to run for a second term next year despite some questions about his health after he underwent a second arterial procedure in less than a year this month. [ID:nN12148722]
What to watch for:
-- Signs of a sustained increase in the government's approval ratings would boost Kirchner's chances of returning to the presidency in the 2011 election.
-- Polls show 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 the presidential couple.
Business leaders are increasingly speaking out against Fernandez's administration as her escalating row with Argentina's top media group Clarin 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 month 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.
Relations with the business elite could be further strained over a union-led bill that would make companies share 10 percent of their net profits among employees.
What to watch for:
-- Progress of profit-sharing bill in Congress.
-- Any signs that the tensions with big business are denting the government's approval ratings.
-- Impact on investment inflows and on debt and currency prices. ARSB=
-- 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 wage rises this year, easing a wave of strikes and labor protests, and increases 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.
Public spending is not expected to slow and this, combined with an expansive monetary policy, is seen stoking inflation to between 25 percent and 30 percent by year-end, forcing the central bank to step up short-term debt sales. [ID:nN23172866]
The controversy over consumer prices data continues and pledges by Economy Minister Amado Boudou to restore credibility to the figures have not yielded visible changes.
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 targets. [ID:nN26213826]
-- Any sign that opposition senators might be able to muster enough votes to approve a bill to reform the questioned INDEC national statistics agency. [ID:nN12251173]
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 planned.
Boudou and President Fernandez have said repeatedly the government will wait until market conditions are right, stressing that it has no need to sell debt. [ID:nN24233301]
Opposition lawmakers are pushing several measures that would hit state finances, such as a pensions hike, but so far they have failed to push them through the upper house. [ID:nN19255736]
Opposition legislators also want to cut grains export levies, which account for about 10 percent of state revenue, but they have not yet put a bill to the vote. [ID:nN25135181]
What to watch:
-- Global risk appetite and whether yields fall low enough to encourage a new bond sale. [ID:nN16102567]
-- A possible debt swap to extend maturities coming due in the run-up to the 2011 election.
-- Any signs of movement on the deadlocked opposition-led pension bill, which would cost some $5.6 billion per year. (Editing by Kieran Murray)