| BUENOS AIRES
BUENOS AIRES Oct 3 President Cristina
Fernandez looks set to win easy re-election this month, giving
her a strong mandate to deepen the unorthodox policies that irk
many farmers, business leaders and Wall Street economists.
The center-leftist president won more than 50 percent in a
primary election in August and opinion polls suggest she has
widened her massive lead over a fragmented field of opposition
With the Oct. 23 election looking like a foregone
conclusion, investors are turning their attention to whether
Fernandez will intensify her unpredictable, interventionist
economic policies in a second four-year term.
Measures such as the nationalization of private pensions
and heavy-handed intervention in the grains trade have rattled
investors in Latin America's No. 3 economy, a major global food
supplier that has yet to return to capital markets nearly a
decade after it defaulted on some $100 billion in debt.
That makes Argentine asset prices sensitive to heightened
global risk aversion and investors have been selling bonds
<AR/BONOS> and stocks .MERV heavily in recent weeks.
Fernandez, 58, bills her candidacy as a tribute to her late
husband and predecessor, Nestor Kirchner, who died a year ago
and who many Argentines credit with putting the nation on its
feet after the 2001/02 economic crisis and default.
A weak opposition, brisk economic growth of about 9 percent
per year and Fernandez's ability to build on public sympathy
over Kirchner's death underpin her high approval ratings.
Here are some of the issues investors are watching:
Opinion polls carried out since the August primary vote
have suggested Fernandez could get even more support.
In the primary, Fernandez came in 38 percentage points
ahead of her two closest contenders, centrist Radical party
congressman Ricardo Alfonsin and former President Eduardo
Duhalde, a dissident member of the ruling Peronist party.
They both got 12 percent of the vote, suggesting the
presidency is out of sight. Some opposition candidates have
already shifted their focus to winning seats in Congress.
August's primary was effectively a nationwide opinion poll
because the parties had already chosen their candidates and
voters could cast ballots for any of them. [ID:nN1E77E00L]
A poll conducted last month by local pollsters Management &
Fit put Fernandez's support at 51.9 percent, with Socialist
candidate Hermes Binner in second place with 11.6 percent.
Under Argentina's electoral system, presidential 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 or more guarantees a first-round victory.
If the primary result is repeated on Oct. 23, Fernandez
would win back control of Congress with the help of allies.
Even a strong showing by Fernandez in October will not
quell speculation over who will succeed her in 2015, although
some commentators have suggested she might try to reform the
constitution and run for a third term. Her allies deny this.
What to watch:
-- Size of Fernandez's victory and what it means for her
control of Congress.
-- Who emerges as strongest opposition figure.
-- Hints over possible cabinet make-up, especially key
economy, agriculture and planning ministry posts.
POLICY IF FERNANDEZ WINS
Fernandez is widely expected to maintain her current policy
course if she is re-elected, although she could be forced to
make some adjustments to address increasing signs of strain,
especially if the global outlook deteriorates. [ID:nN1E75L0A7]
One of Fernandez's biggest headaches could be maintaining
the competitiveness of Argentine industry as annual inflation
estimated privately at more than 20 percent erodes the
advantage of a nominally weak peso. ARSB=
Fernandez has pursued a managed-float exchange rate policy
and most economists expect the central bank to allow a faster
rate of depreciation after the election. Persistent
depreciation of neighboring Brazil's currency BRBY could
intensify industry calls for a weaker peso after the election.
Primary spending and money supply are growing at annual
rates of more than 35 percent, stoking consumer activity but
also fueling inflation and wage demands.
The government's prized primary budget surplus and trade
surplus have also narrowed, giving a second Fernandez
administration less firepower for counter-cyclical spending and
for paying debt out of foreign reserves. ARPBS=ECI
A slump in global commodities prices or Brazilian demand
for Argentina's manufactured goods would exacerbate the
situation, possibly prompting a hardening of current unorthodox
measures and pressure on the private sector.
That might mean intensified import substitution -- forcing
companies to balance exports and imports -- or unexpected steps
to bolster state finances similar to the pensions takeover.
One area where she might be willing to make cuts are
mounting transport and energy subsidies. [ID:nN1E76I1FO]
What to watch:
-- Progress of the government's 2012 budget bill through
Congress and details of financing plans. [ID:nS1E78I225]
-- Any movement on bill to limit land sales to foreigners.
-- Signs global outlook could force adjustments.
-- Hints of farm policy concessions such as reforms to
unpopular corn and wheat export curbs. [ID:nS1E78L066]
INFLATION AND FINANCES
Argentina's official inflation data has come in way below
private estimates since Kirchner replaced staff at the INDEC
statistics agency with allies in 2007. ARCPI=ECI
The low-balling of price data is a big gripe of Wall Street
economists and the government plans to unveil a new nationwide
price index by late 2013 or early 2014 to try to restore
credibility to the once-respected INDEC. [ID:nN19257167]
A landslide victory this month would strengthen Fernandez's
hand in dealings with powerful union bosses such as Hugo
Moyano, but persistent inflation could fan wage demands and
social and labor protests early in a second term.
The government plans to tap foreign reserves to pay debt
for a third year in 2012, but capital flight and a shrinking
trade surplus could make that more difficult. [ID:nS1E78B0XT]
The government continues with efforts to mop up lingering
fallout from the 2002 default, clearing its way for a possible
return to credit markets. One remaining hurdle is repayment of
the roughly $9 billion Argentina owes to the Paris Club of
wealthy creditor nations, something the government hopes to
agree before year-end.
Some economists say the government may have to turn to the
markets next year or let the peso depreciate more sharply to
meet its financing needs as its fiscal accounts worsen and
excess foreign reserves dry up. [ID:nN1E76S11U]
But selling debt would likely be a last resort if borrowing
from state agencies or using reserves were impossible.
What to watch:
-- Falling reserves and implications for state financing.
-- Tax revenue and fiscal deficit in case of slowdown.
(Editing by Kieran Murray)