The more things change throughout much of the developing world,
the more they stay the same in Argentina. While its neighbour
Brazil is now widely lauded as no longer being the country of
the future but of the present, Argentina is still mired in the
Earlier this year, the countrys political opposition
went for the jugular of its president Cristina Fernández
de Kirchner and her husband Néstor Kirchner, also her
predecessor and governing partner.
Enraged over Fernández de Kirchners use of an
executive decree to transfer reserves from the countrys
central bank to make debt payments and increase government
spending, opposition leaders in Congress where the
Kirchners for the first time lacked a majority
threatened to overturn the orders. They only needed a simple
majority vote to do so, but could not keep their numerous
factions unified, and so failed to come up with the votes.
They also vowed to railroad the nomination of Kirchner-ally
Mercedes Marcó del Pont to take over the central bank
after its predecessor, Martín Redrado, was fired for not
going along with Fernández de Kirchners wishes.
The country was consumed by yet another political
The opposition ended up failing to fulfil any of its
promises. It has virtually no legislative accomplishments of
which to speak. Marco del Pont took over the central bank and
served out her term, which ended in September. (At the time
that Emerging Markets went to press, she was expected
to continue.) Her term was for the most part uneventful.
Argentina made its debt payments and still managed to
accumulate a new record of $51 billion in reserves on September
16, according to government figures.
The government also completed its debt swap earlier this
year with those bondholders that sat out the 2005 exchange. It
has paid more than 90% of them, in its effort to settle
accounts from the 2001 default.
This led to a minor improvement in ratings. Last month,
S&P raised Argentinas foreign and local currency
ratings to B five levels below investment grade. But
that tepid market reaction is not what the government had hoped
for. Argentina has the same rating as tiny Paraguay and Bolivia
and is two ratings below neighbour Uruguay.
Rather than leveraging the minor boost in goodwill from the
recent debt swap and rating upgrade, the Kirchners continue to
govern in crisis mode. Fernández de Kirchner never tires
of telling Argentines how grateful they should be to the
Kirchners for steering the country out of its 2001 crisis. She
often describes what her husband inherited in 2003 as a
hell. There is a good deal of truth to this.
The Kirchners want credit for how far the country has come
but continue to use economic measures meant for crises, such as
price controls and export restrictions. They refuse to try out
new approaches, such as long-term economic planning and
establishing clear and predictable rules.
One example is next years budget, submitted to
Congress last month. Fernández de Kirchner has allocated
$7.5 billion for upcoming debt payments from central bank
reserves again. Such a move suggests that Argentina remains in
no hurry to tap international capital markets.
Alberto Bernal-Léon, head of research at Bulltick
Capital Markets in Miami, says that the government is sending a
clear message to investors: We dont care what you
do. If you like us, fine. If not, whatever.
Another sign of this apparent indifference to investors is
the governments decision in August to close the National
Agency for Investment Development. It was headed by an
internationally respected economist, Beatriz Nofal, one of the
governments few advocates for private investment.
Next years proposed budget also underestimates
government expenditures, according to Argentine economist at
Estudio Bein (and previously at the central bank) Marina Dal
Poggetto. She tells Emerging Markets that, this
is a typical Kirchner pattern, to underestimate costs in
the budget Congress is required to approve, but follow that up
with executive decrees that increase spending.
And once again, the government continues to underestimate
inflation. It says it will be 9% next year about a third
of what the market expects. The Kirchners show no signs of
fixing the widely discredited statistics agency.
Its not just economists who question the
Kirchners numbers, but also the provinces. Sante Fe
governor Hermes Binner, who is considered a possible candidate
to run against the Kirchners in the 2011 presidential
elections, tells Emerging Markets that his
provinces statistics agency uses the same methodology
that the national Indec used prior to the Kirchners
He says that it is not only the private sector that
questions the Kirchners, pointing out that our statistics
are official. Binner says that Santa Fe gets calls each
month from the other provinces as well as trade and labour
unions, some Kirchner allies and businessmen, all wanting to
know what the true rate of inflation is.
This is also why economists do not expect Argentina to pay
off its Paris Club debt this year, which would require an
Article IV review by the IMF. That would invariably audit the
Kirchners records and statistics. Anibal
Fernández, the presidents chief of staff,
dismisses this, saying that the IMF was paid off because the
government did not want it to have a hand in any of
Much of the opposition for its part can hardly claim to be
advocates of fiscal discipline, says Dal Poggetto. In some
cases, such as pension reform, it is attempting to outspend the
government. But it continues to have trouble passing any of its
So the 2011 budget battle is expected to get ugly, says Dal
Poggetto. It is going be a long and noisy
And once again, international investors and Argentines can
expect more political melodrama in December, a month which
curiously bears a disproportionate share of political
Argentine political analyst Rosendo Fraga tells Emerging
Markets that Argentina continues to be characterized
by institutional instability and political conflict, in
contrast with its neighbours Brazil and Chile.
The irony once again is that Argentinas economic
fundamentals remain solid. In addition to record reserves, the
government forecasts 9% growth for 2010. This is in part due to
a record soy harvest and boom in industrial production. And
with the intent to use reserves to pay off next years
debt payments, there is little talk of default here. Things
look good for 2011.
Bernal-Léon says: If people still doubt the
Kirchners willingness to pay off the countrys debt,
then they are missing the story. He adds, They are
not as ideological as other presidents in the region. They will
continue to pay debt. They understand that when Argentine
presidents do not pay debt they are usually forced to
Other indicators suggest an improving economy. The
University of Torcuato di Tellas monthly Index of
Consumer Confidence reported a 4.6% increase in August over
July. It also showed a 12-month increase of 24%. And all
sub-indicators increased: Argentines personal situation,
intention to buy personal goods and property, and their
expectations of the macroeconomy. All socioeconomic classes
also saw increases.
Job expectations also appear to be improving. Manpower
Argentinas Survey of Employment Expectations for Q4 2010
showed that 22% of employers interviewed expected to increase
the number of employees. Mining and construction reported the
largest improvement and agriculture the lowest.
Yet Argentinas growth remains highly dependent on
commodity exports and domestic consumption. (One exception is
in technology. Argentinas budding entrepreneurs are
creating a technology hub for Latin America in the country, and
leading Silicon Valley firms routinely outsource much of their
programming to these firms.)
Economically things are progressing well, but the political
situation is complicated by the politicking ahead of the
presidential elections next year, where the Kirchners are
expected to focus on domestic issues.