| BUENOS AIRES, March 2
BUENOS AIRES, March 2 Simmering political
tensions could ruffle Argentine financial markets over the
coming months as President Cristina Fernandez and her rivals
lock horns ahead of October's presidential election.
As Latin America's No. 3 economy booms, the center-leftist
Fernandez leads polls and is widely expected to seek
re-election following the death last year of her powerful
husband and predecessor as president, Nestor Kirchner.
While Fernandez keeps voters and allies guessing about
whether she will run, numerous opposition candidates are trying
to stitch up alliances strong enough to chip away at her
formidable poll lead. [ID:nN01291216]
Kirchner's death sent Argentine bond and stock prices
higher as investors bet the couple's time in power was coming
to an end, clearing the way for a more business-friendly
government to be elected in 2011. [ID:nN29175687]
But Fernandez's healthy poll ratings and signs she is
moving to the left by stepping up pressure on the private
sector and distancing herself from centrist allies could weigh
on asset prices as voting nears.
Economists say high international grains prices and brisk
demand from neighboring Brazil are cushioning the Argentine
economy, but that double-digit inflation is becoming entrenched
-- leaving a tricky legacy for the next government.
Here are some of the main issues investors are watching:
Polls conducted after Kirchner's death on Oct. 27 have
suggested Fernandez would win in a first round, especially
because no single, strong opposition candidate has emerged.
However, Fernandez's approval rating has since dipped to as
low as 40 percent, according to pollsters Management & Fit, and
she might be reluctant to announce her candidacy unless she can
stabilize that level of support.
Under Argentina's electoral system, candidates can win in a
first round with 40 percent of the vote as long as the
second-placed candidate trails by at least 10 points. Support
of 45 percent guarantees a first-round victory.
That level of backing in polls would also make it easier
for her to secure the loyalty of notoriously fickle Peronist
party bigwigs who control the vote-winning machinery --
especially in the densely-populated outskirts of the capital.
But Fernandez appears instead to be trying to strengthen
her backing outside the Peronist party, forging links with
non-Peronist center-leftists and shunning Daniel Scioli, the
moderate governor of Buenos Aires province.
Scioli is seen as sympathetic to business interests, so
Fernandez's apparent move to distance herself from him could
cement investors' concerns.
What to watch for:
-- Fernandez's poll ratings and any signs of waning support
that could discourage her from standing.
-- Improved poll ratings could encourage her to further
distance herself from centrist Peronists.
-- Signs of opposition challengers making significant
headway in polls. [ID:nN07284521]
After some initial signs she might be more pragmatic
following the death of her combative husband, Fernandez has
increased pressure on the private sector in recent weeks --
ordering businesses to cap prices and pressuring economists
over their independent inflation forecasts. [ID:nN10179577]
Several minor cabinet changes, such as the appointment of
Nilda Garre as security minister and Juan Manuel Abal Medina as
media secretary, suggest Fernandez wants to promote progressive
leftists. Conversely, Cabinet Chief Anibal Fernandez and
Interior Minister Florencio Randazzo have lost influence.
Fernandez is said to be taking increasing note of the
advice of leading members of the La Campora youth group, set up
by the Kirchners' son Maximo.
What to watch for:
-- Signs of hardening on economic policy, such as increased
export curbs to stem inflation and import restrictions aimed at
protecting the trade surplus.
-- Following recent abolition of ONCCA farm trade agency,
any other surprise moves that could let Fernandez further
tighten control over key economic sectors. [ID:nN25281636]
SPENDING AND FINANCES
Social spending is accelerating fast, highlighting
Fernandez's decision to prioritize economic growth despite
surging annual inflation ARCPI=ECI, estimated by analysts to
be running at about 25 percent. [ID:nN12194801]
She has announced increases to pensions and child welfare
benefits, measures that could help bolster her support among
the poor and assure die-hard Kirchner followers she is
respecting her husband's legacy.
By signing a decree to tap another $7.5 billion from
central bank reserves to repay private creditors, Fernandez
will be able to maintain spending, which has been growing by
about 40 percent year-on-year in recent months.
Economists say loose fiscal and monetary policies make
rising prices ever harder to contain, raising the appeal of
imports due to the nominally stable exchange rate ARSB=,
eroding purchasing power and fueling pay demands.
What to watch:
-- Any loosening of central bank monetary supply growth
-- Paris Club debt negotiations. Markets rallied when
Fernandez announced talks to repay defaulted debt, seen as a
vital step if Argentina is to tap credit markets for the first
time in nine years, but progress has lagged. [ID:nLDE71N1XW]
STRIKES, SOCIAL UNREST
Farm leaders have threatened to resume strike protests if
the government does not lift export curbs on wheat and corn.
They were skeptical over Fernandez's decision to scrap the
ONCCA export agency, but any strikes are likely to be short and
symbolic with a limited impact on global grains prices.
Surging inflation is, however, fanning wage demands across
industries, and could aggravate social tensions and strikes,
putting Fernandez under pressure as she seeks to pacify union
Violence between squatters and local residents late last
year, partly blamed on soaring rents in the slums, was a
reminder of how quickly unrest can escalate. [ID:nN20136978]
What to watch:
-- Involvement of pro-government trade unions in strikes or
protests, which might strain Fernandez's ties with the
country's most powerful union leader, Hugo Moyano.
-- Any perceived upswing in social unrest or crime, which
the opposition could use to attack the government.
(Editing by Kieran Murray)