August 15, 2011 / 6:40 AM / 9 years ago

UPDATE 4-Argentina's Fernandez hand strengthened by primary

 * Fernandez likely to win re-election on Oct. 23
 * Expected to deepen state intervention in the economy
 * She says will take pragmatic anti-crisis approach
 (Updates with market reaction, rewrites throughout)
 By Hilary Burke and Luis Andres Henao
 BUENOS AIRES, Aug 15 (Reuters) - Center-left Argentine
President Cristina Fernandez looks set to win a second term in
October and deepen her interventionist policies after thrashing
rivals in a primary election, results showed on Monday.
 With almost all of the votes counted, Fernandez had just
over 50 percent support -- 38 percentage points ahead of her
closest contenders, centrist congressman Ricardo Alfonsin and
former President Eduardo Duhalde.
 Sunday's primary vote was effectively a nationwide opinion
poll because the parties had already chosen their candidates
and voters could cast ballots for any of them.
 Fernandez has rankled Wall Street by imposing price
controls, nationalizing private pension funds and publishing
inflation data far below private estimates.
 But Argentine voters put her on track for a first-round
triumph on Oct. 23, when she will need just over 45 percent
support to win outright.
 Markets barely reacted to the primary landslide since her
expected re-election is already priced in to Argentine assets.
 Although Latin America's third-largest economy is booming,
Fernandez faces major challenges. She will have to tame high
inflation without hurting growth, cut spending, and find a way
to repay debt without draining central bank reserves.
  Full election campaign coverage              [ID:nARVOTE]
  Political risks in Argentina                 [ID:nRISKAR]
 Asked on Monday how she plans to cover debt payments next
year, Fernandez alluded to doubts over U.S. and European
financial woes. "Talking about next year in today's world is
like talking about something two centuries away."
 She said her government has adopted a mix of orthodox and
unorthodox measures to overcome obstacles in the past, telling
reporters many of these steps "were not understood."
 "When we have a clearer view of the global scenario ... we
will take whatever measures are needed, as we've always done."
 Fernandez also urged Congress to pass her bill to limit
foreign land ownership, pushing ahead with a policy initiative
aimed at strengthening Argentine control over its farmland and
other natural resources. [ID:nN27148049]
 Argentina's political opposition took control of Congress
in 2009 when Fernandez of the ruling Peronist party was still
reeling from a farmers' tax revolt from a year earlier and the
global financial crisis.
 But sharp divisions between opposition leaders have
rendered them incapable of blocking government initiatives.
 Sunday's primary left the opposition weaker and more
fragmented than ever, political analysts said.
 Alfonsin and dissident Peronist Duhalde both won 12.2
percent of votes while Hermes Binner, the socialist governor of
Santa Fe province, fetched 10.3 percent.
 The law prohibits them from forming an alliance.
 "With the three leading candidates in the opposition
practically tied, the probability of someone stepping down to
consolidate the vote against the government seems unlikely,"
Felipe Hernandez, an RBS analyst, wrote in a research note.
 Government curbs on corn and wheat exports have riled
farmers and exporters in the major grains-producing nation. But
Fernandez, 58, won strong support in urban and rural areas --
including farming centers.
 Many Argentines credit Fernandez and her late husband and
predecessor, Nestor Kirchner, with reviving the economy after a
2001/02 financial crisis, when Argentina declared a record
sovereign debt default that made it a market pariah.
 Their governments stoked high growth at the cost of fanning
inflation, estimated privately at about 25 percent a year.
 Economists say surging prices along with costly energy
subsidies and a shrinking trade surplus will spell trouble.
 Fernandez's strong backing "reduces the probability of the
government proactively adjusting economic policy, despite
evidence of imbalances and market concerns about sustainability
in the medium and long term," Hernandez said.
 Financial markets had priced in a second four-year term for
Fernandez, but some investors hoped a strong opposition
contender would emerge and spark a bond and stock rally.
 This did not materialize. Argentina's benchmark MerVal
stock index .MERV closed up 0.76 percent on Monday, buoyed by
gains abroad, while the peso currency ended mixed on the
informal ARSB= and interbank markets ARS=RASL.
 Argentine bonds traded locally over-the-counter ended flat
but GDP warrants -- which provide bigger payouts to holders the
more the economy grows -- rose by as much as 3.8 percent. For
more on GDP warrants please see [ID:nN01207204]
 "Cristina's electoral results had a clear, solid effect on
GDP warrants. These continue to be the market's superstar, both
in pesos and dollars," said Ruben Pascuali, an analyst at
Mayoral Bursatil brokerage. "Many investors think that if
Cristina wins, high growth rates will continue because the
government will keep bolstering domestic consumption."
 In October, Fernandez needs to earn 45 percent of the vote
to win re-election outright. She could also avoid a run-off
with 40 percent plus a 10-point lead over the runner-up.
 Voting in Sunday's primary was obligatory and the turnout
was higher than expected at nearly 78 percent.
 (Additional reporting by Simon Gardner, Alejandro Lifschitz,
Hugh Bronstein, Juliana Castilla and Maximilian Heath; Editing
by Kieran Murray)

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