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FACTBOX-Key political risks to watch in Argentina
June 1, 2011 / 1:58 PM / 6 years ago

FACTBOX-Key political risks to watch in Argentina

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BUENOS AIRES, June 1 (Reuters) - Argentine President Cristina Fernandez is far ahead in the polls five months before a presidential election, her position boosted by brisk economic growth and the absence of a strong opposition challenger.

Candidates have until June 25 to register for compulsory primaries ahead of the Oct. 23 election, and the center-left leader will likely keep voters guessing about whether she will run until the last minute. [ID:nN30241693]

Fernandez has said she is "not dying to be president again," but she is almost certain to run. Political analysts say such comments and her decision to postpone an announcement are aimed at whipping up support. [ID:nN12243558]

Fernandez's popularity surged late last year after the death of her powerful power-broker husband, Nestor Kirchner, who preceded her as president. [ID:nN04130826]

Some analysts expected her approval ratings to slide once public sympathy had ebbed, but she has widened her lead over an ever-shrinking pool of opposition challengers.

That has spurred key opposition figures such as Buenos Aires Mayor Mauricio Macri to quit the presidential race. [ID:nN065085]

Betting that a Fernandez victory in October will mean a slightly steeper depreciation of the peso ARSB=, investors are putting more money into dollar-denominated bonds and American Depositary Receipts (ADRs) as the vote draws closer.

Safe-haven demand for dollars, which tends to accelerate in the run-up to elections, has increased since the start of the year, but currency traders say the central bank will intervene to avert any significant fluctuations in the exchange rate.

Here are some of the main issues investors are watching:

Election Build-Up

Numerous polls conducted since Kirchner's death on Oct. 27 have suggested Fernandez could win in a first round of voting, especially as opposition leaders struggle to cement strong alliances or abandon their presidential hopes. [ID:nN26210915]

Under Argentina's electoral system, candidates can win in a first round with 40 percent of the vote if the second-placed candidate trails by at least 10 points. Support of 45 percent guarantees a first-round victory.

Fernandez's approval ratings rose to 53.9 percent in the latest monthly poll by the Management & Fit consulting firm, and some surveys have shown more than 45 percent of voters would cast their ballot for her.

Her nearest rival, center-left Congressman Ricardo Alfonsin, trails far behind. His success may hinge on whether he is able to sew up a pact with Hermes Binner, the Socialist governor of Santa Fe province.

If Binner chooses to launch his own presidential bid, Alfonsin could lose the support of the Socialists and smaller leftist parties. Some have already expressed doubts about Alfonsin's efforts to court dissident Peronist lawmaker, Francisco De Narvaez, seen as a center-rightist.

What to watch for:

-- The announcement of Fernandez's candidacy and any reaction from markets, which have largely factored in a re-election bid.

-- Her choice of running mate. That could be a key sign of her policy direction in a second term.

-- Outcome of negotiations between Alfonsin, Binner and De Narvaez and the impact of any deals on the polls.

Changes Post-Kirchner

There have been signs of increasing strains in relations between Fernandez's government and powerful union leader, Hugo Moyano, since Kirchner's death.

Although he has repeatedly voiced support for her re-election bid, Moyano is also demanding greater representation for union figures in the government and on lists of electoral candidates. [ID:nN22178023]

Fernandez has also been forging closer ties with non-Peronist center-leftists such as congressman Martin Sabbatella and a young Kirchnerista group called La Campora that was founded by her son, Maximo Kirchner.

That strategy could further hurt ties with Moyano as well as the Peronist mayors who control the vote-winning machinery in the densely populated outskirts of Buenos Aires.

After some initial signs that she might be more pragmatic following the death of her combative husband, Fernandez has increased pressure on the private sector this year -- ordering businesses to cap prices, fining economists over their independent inflation forecasts and moving to increase the state's presence on company boards. [ID:nN13300029]

She has also imposed new import obstacles on manufactured goods and forced carmakers to make sure their imports do not exceed their exports.

What to watch for:

-- Possible tensions with Moyano over electoral lists and the inclusion of unionists.

-- Trade spat with neighboring Brazil over Brazil's move to slow car imports and any sign it could hit industry output. [ID:nN24288275]

Inflation and Finances

High grain prices and strong demand from Brazil underpin the strength of the Argentine economy, but economists warn that surging consumer prices are becoming entrenched -- leaving a tricky legacy for the next government.

Public spending is up more than 30 percent from last year, highlighting steep wage hikes and Fernandez's decision to prioritize growth despite rising inflation ARCPI=ECI, estimated by analysts at above 20 percent annually.

Hefty growth in tax revenue and social security contributions have allowed her to raise pensions and child welfare benefits and she has continued to tap central bank reserves to service the public debt.

However, 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, eroding purchasing power and fueling pay demands that often lead to labor protests.

Strikes have battered the energy sector in recent months, causing sporadic fuel shortages and hitting oil exports.

What to watch:

-- Ongoing wage negotiations and strike threats in sensitive industries such as the grains export sector, though several key unions, including Moyano's truckers, have already agreed to wage hikes.

-- Further deterioration in the country's trade surplus and budget balance if transfers from the central bank and pensions agency are excluded.

-- Signs of economic policy direction if Fernandez is elected in October. (Editing by Kieran Murray)

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