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Days after her landslide victory in October, center-left
Fernandez rattled savers and companies by announcing a raft of
currency measures in a bid to stem capital flight that had
accelerated in the run-up to the vote.
Investors bought dollars heavily between August and October
on bets the central bank would let the peso depreciate more
rapidly after the election. Double-digit inflation is raising
industry costs and a weaker peso would boost competitiveness.
A semblance of normality has returned to the currency
market over the last two weeks and the central bank has resumed
dollar purchasing, helping replenish reserves depleted by
months of heavy sales to prop up the peso .
But even if the government has won a first battle against
capital flight, economists say it could face a much longer war
to avert future dollar outflows being fueled by inflation and
nagging political uncertainty.
They say that will depend on Fernandez’s policy course over
the next four years. Who she appoints to posts such as economy
minister and cabinet chief will set the tone for the government
to be sworn in on Dec. 10.
During her first term, Fernandez nationalized private
pensions and stepped up state control over the grains trade in
Latin America’s No. 3 economy, which defaulted on some $100
billion in debt a decade ago.
Here are some of the issues investors are watching:
CABINET CHANGES
Economy Minister Amado Boudou will become Fernandez’s vice
president in her second term, leaving his job open. Among those
tipped to succeed him are Finance Secretary Hernan Lorenzino, a
low-profile technocrat who would be favored by financial
markets and the banks, and central bank chief Mercedes Marco
del Pont. Manufacturing industry leaders are said to prefer
Marco del Pont, who shares the president’s pro-industry views.
Industry Minister Debora Giorgi and Juan Carlos Fabrega, head
of the state-run Banco Nacion, are also seen as contenders for
Boudou’s job.
There is also close interest in whether Fernandez keeps
controversial price watchdog Guillermo Moreno in his job at the
Domestic Commerce Secretariat. Moreno routinely uses
arm-twisting tactics to reach price accords and more recently
he has been a key figure in government efforts to control the
foreign exchange market.
Like Moreno, powerful Planning Minister Julio De Vido
passed to Fernandez’s team from that of her late husband and
predecessor as president, Nestor Kirchner.
Agriculture Minister Julian Dominguez, who was elected to
Congress, will also be replaced and a high-level ministry
source said little-known Fishing Undersecretary Norberto Yahuar
will succeed him.Long-running tensions with
farmers eased during Dominguez’s tenure.
What to watch:
- Economy minister’s appointment and signs of whether it is
a more market- or industry-friendly choice.
- Cabinet chief and planning ministry, agriculture ministry
jobs, important posts for farming and industry.
STATE FINANCES
Ten years after staging the biggest sovereign debt default
in history, Argentina has yet to resume global debt sales.
The 2012 budget bill, which Congress is expected to
approve, earmarks the use of billions of dollars in central
bank reserves to repay debt for a third consecutive year.
Heavy dollar sales by the monetary authority since August
have eroded the so-called excess reserves available for debt
repayment, raising questions about state finances at a time of
a worsening global outlook and lower grains prices.
Heavy Treasury borrowing from other state bodies such as
the Anses pensions agency is also likely to continue and Boudou
has said the government can meet its financing needs without
having to sell bonds at high rates.
State spending has grown at an annual rate of about 40
percent in recent months, outpacing tax revenue growth and
eroding the government’s prized primary budget surplus.
That would give Fernandez less firepower for
counter-cyclical spending if a long boom runs out of steam. A
sharp deterioration in the economy’s health might prompt fresh
measures to boost revenue or shield the trade surplus.
In a sign Fernandez is concerned about the ballooning bill
for state utility subsidies, she has taken a few steps toward
cutting them for large companies and high-income residential
users.
Further cuts could carry a high political cost and
Fernandez will want to avert a backlash early in her second
term and as the economy slows.
What to watch:
- Further moves to boost dollar supplies, stem outflows.
- Any sign of slower spending in next few months and
further subsidy cuts or popular discontent over higher bills.
- Progress on $9 billion Paris Club debt repayment deal.
- New economy minister’s position on issuing new debt.
- Foreign reserves and implications for state financing.
INFLATION, PAY DEMANDS
Argentina’s central bank has no inflation-targeting regime
and the government uses company price accords and export curbs
to try to ensure basic goods are affordable.
Fernandez rarely acknowledges inflation that is estimated
privately at more than 20 percent, but government officials
have called for moderation from the unions in the next round of
annual pay talks in early 2012.
Some union leaders have indicated they will not accept caps
on wage demands, setting the scene for tense salary
negotiations in the new year. Further signs of strain in the
government’s relationship with powerful union leader Hugo
Moyano could raise the risk of labor unrest.
Argentina’s official inflation data has come in way below
private forecasts since early 2007, when Nestor Kirchner
removed long-serving staff at the consumer price unit.
Statistics officials are working with the International
Monetary Fund to design a new, nationwide consumer price index
that should be up and running by early 2014, but few economic
analysts expect Fernandez to make restoring credibility to the
data a priority.
Fernandez is not expected to become a fierce
inflation-fighter but her calls to the unions and initial
subsidy cuts suggest she is concerned about price pressures.
What to watch:
- Comments from union leaders on wage hike expectations.
- Fernandez’s ties with Moyano, who faces re-election at
the CGT labor federation next year.
- Slowdown in public spending that could cool prices.
- Choice of economy minister and his or her stance on
inflation.
- Any depreciation of the peso, which could further stoke
inflation, or fresh measures to prop it up.
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