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business newsEasy Re-Election for Argentine President Means Policy Shift Unlikely
Cristina Kirchner won big after her fiscal policies helped create the country's economic boom. They might be outmoded, though, in an era of inflation and weak trading partners.
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Kirchner won by around 54% of the vote, leaving her closest rival 37 points behind. It is the greatest victory since that of Juan Domingo Perón with his 62% majority in 1973 as he won his third term.
The current president’s husband and predecessor Néstor Kirchner died last year after a successful term that ended in 2007, leaving his wife to take the helm. Many referred to the couple’s tenures -- beginning with Néstor in 2003 -- as a “presidential marriage.”
“There's a lot left to do, but if anyone had seen this country before 2003, they would realize how much progress we've made,” Kirchner told thousands of supporters gathered in front of the Casa Rosada presidential palace in the capital’s main square.
The center-left president “made little effort to share her victory with anyone other than her husband and former president,” wrote Sebastian Vargas of Barclays Capital in New York in a note to investors.
This is a clear sign that there is to be little policy change. Now, points out Vargasof, would be the perfect time to implement it.
“If she were to change policies, she would likely use the new government as an opportunity to make meaningful changes in the cabinet, signal change, and this is the opposite of what seems to be in the works,” he said. “For now, it seems the cabinet will rotate, rather than change.”
Both Kirchners’ economic policies -- though unconventional -- are credited with the country’s economic boom. Néstor Kirchner spent heftily on the welfare state after an economic crisis in 2001 and '02, which put the country back on track. His death led to an outpouring of sympathy for his wife, who continued down his center-left line.
Now, unemployment is at a 20-year low and the economy is likely to grow more than around 8% this year. However, inflation is around 24% -- second only to that of Venezuela -- and the global crisis is hitting Argentina, with much downward pressure on the peso.
Indeed, Kirchner’s policies are not too dissimilar to those of President Hugo Chávez of Venezuela, though perhaps milder in tone. The subsidies and nationalistic policies -- such as restricting imports to promote local manufacturing and limits on the purchase of farmland by foreigners -- mirror those of the socialist leader.
That has led to capital flight, claims an editorial in the Washington Post, and the country is still locked out of the world’s capital market because of its 2001 default on $95 billion of bonds
Capital flight led to the Central Bank’s sale of $2.7 billion of reserves earlier this year to curb the 6.1% slump in the peso against the US dollar this year.
Argentina saw foreign direct investment fall 30% in the first six months of 2011, according to recent figures from the United Nations Economic Commission for Latin America. This took place when Latin America as a whole saw a 54% rise. This comparison, however, is skewed by a 157% increase in Brazil’s figure as well as a 91% rise in Colombia’s.
The government in Argentina recently cracked down on economists who posted inflation forecasts that were double the official rate from a state statistics agency that has already been discredited, leading to further parallels with Chávez.
As the global markets weaken, analysts are expecting Argentina to suffer thanks to its lax monetary and fiscal policies and soaring inflation.
“Keeping the economy expanding … will be harder when Brazil and China, Argentina’s top two trading partners, are shrinking, not growing, and prices for soya, Argentina’s main export, have been declining,” wrote Jude Webber in the Financial Times.
Webber adds that popular support is easy to maintain when “you’re dishing out money right, left and center.”
The Kirchners’ combatative style has dominated Argentine politics since Perón, and is typical of the Peronist party.
“In our view,” wrote Vargasof, “tensions could eventually build within the Peronists, as some Peronist governors may have sufficient chances to be elected in (the) 2015 presidential election.”
As Kirchner’s victory was so predictable, there has been little market reaction. She now has four years to cement the direction in which Argentina economy will head -- down the moderate path of Rousseff of Brazil, or the shaky one of Chávez of Venezuela.
Twitter: @jammastergirish
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