July 5, 2011 / 3:16 PM / in 7 years

Factbox: Key political risks to watch in Argentina

BUENOS AIRES (Reuters) - President Cristina Fernandez is seeking re-election and polls show she could take victory in the first round on October 23, helped by brisk economic growth and the absence of a strong opposition challenger.

Fernandez ended months of speculation in June by confirming she will run for a second four-year term, vowing to deepen the leftist policies that have infuriated many business leaders and farmers in Argentina, Latin America’s No. 3 economy.

The center-leftist leader has billed her candidacy as a tribute to the legacy of her late husband and predecessor as president, Nestor Kirchner, who died late last year.

Analysts say they expect few changes to Fernandez’s interventionist and unpredictable policy-making in the likely event she is re-elected, although she could be forced to make some adjustments.

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

Financial markets had largely factored in Fernandez’s expected re-election bid and her decision to name her economy minister, Amado Boudou, as her vice presidential candidate did not impact Argentine asset prices.

Here are some of the main issues investors are watching:


Fernandez has support of about 40 percent and an advantage of at least 20 points over her nearest rival, centrist congressman Ricardo Alfonsin, in most opinion polls. That points to her being re-elected in the first round and averting a riskier run-off.

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.

Argentine politics are notoriously volatile, however, and less than four months from polling day, the president’s easy election for another four years cannot be guaranteed.

Some analysts say her popularity has taken a hit from a corruption scandal at prominent human rights group Mothers of the Plaza de Mayo, which has close government ties. The scandal may fizzle out without serious implications for Fernandez, but any more similar debacles could alter the election outlook.

Even if she loses several points of support over the coming months, she will only be at serious risk if her rivals can mount a more convincing challenge.

Alfonsin has stitched up an alliance with dissident Peronist lawmaker, Francisco De Narvaez, who is popular in the key electoral district of Buenos Aires province.

Other opposition efforts to forge strategic pacts have failed, however. Hermes Binner, the Socialist governor of Santa Fe province, has launched his own candidacy after talks with Alfonsin broke down. Binner’s candidacy is seen stealing votes from both Fernandez and Alfonsin, as well as center-left congresswoman Elisa Carrio.

Some trade union leaders and old-school Peronist leaders are said to be unhappy with the ruling party’s electoral lists, saying they have been passed over in place of young pro-government loyalists in the La Campora group founded by her son, Maximo Kirchner.

What to watch for:

-- Fernandez’s poll ratings and any sign of a drop in support big enough to make opposition challenges a threat.

-- Outcome of provincial and mayoral elections in July and August in Buenos Aires, Santa Fe and Cordoba and whether that could influence national outlook.

-- Any sign of rebellion among traditional Peronist allies over electoral lists.


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 voiced support for her re-election bid, Moyano wanted greater representation for union figures in the government and on lists of electoral candidates. Boudou is an acceptable vice presidential candidate for the unions, but Moyano would have liked Fernandez to choose a figure directly linked to his CGT labor confederation.

Emboldened by the opinion polls, Fernandez seems more willing to challenge the government’s traditional alliances.

She has been forging closer ties with non-Peronist center-leftists such as congressman Martin Sabbatella as well as members of La Campora.

Many supporters from the ranks of the youth group will run as ruling party candidates on October 23, underlining Fernandez’s commitment to rebuild the support base she largely inherited from her husband.

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.

She has also imposed new import obstacles on manufactured goods and forced carmakers to cut their trade deficits, leading some to export goods from wine to biodiesel.

What to watch for:

-- Possible tensions with Moyano, mayors over electoral lists and any defections from ruling party ranks

-- Suggestions over who might run the economy in a second Fernandez term, due to Boudou’s move to the relatively powerless role of vice president

-- Hints on policy pledges for a second term


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, 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.

These issues could become more pressing from 2012 onward if the global outlook deteriorates.

What to watch:

-- Ongoing wage negotiations and strikes in sensitive industries such as the energy sector, which has been hard hit this year.

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

Editing by Kieran Murray

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