BY WALTER T. MOLANO
With the presidential elections only three months away, President Kirchner is leading into the final lap. The Argentine president is harvesting four years of economic recovery following one of the worst disasters in the country’s history. Argentina is now one of the fastest growing economies in the world, a major exporter of grains and one of the top tourist destinations in the Western Hemisphere. However, President Kirchner’s strong-armed tactics are weighing against him, and some of his political support is waning. His only saving grace is that there is no organized opposition to take advantage of the shift in political sentiment.
In the aftermath of the 2002 debacle, the Argentine economy is soaring. Part of the recovery is attributed to the natural rebound following the collapse of 2002, when the economy contracted by two-thirds in dollar-terms. Since then, the Argentine economy expanded more than 50 percent and should grow at a similar pace for the next few years—due to the natural momentum of the rebound.
However, part of the recovery can be attributed to the improvement in external conditions. The global shift towards ethanol use is putting upward pressure on grain prices, boosting Argentina’s external accounts.
Moreover, the maxi-devaluation of 2002 transformed Argentina into one of the top tourist destinations in the Western Hemisphere, creating employment and boosting investment in hotels and travel infrastructure.
These factors put Argentina on a road to recovery and allowed President Kirchner to emerge as a strong and popular leader. Not surprisingly, he wants to convert his popularity into a political dynasty. This is why Kirchner is placing his wife, Cristina, on the presidential ballot.
Already a powerful senator, Cristina is well known and liked inside Argentina. Many consider her to be more market-friendly and pragmatic in her approach. Cristina is critical of her husband’s close relationship with Venezuelan President Hugo Chavez. She was recently on missions to Europe, the U.S. and Latin America, and received several delegations of important business leaders.
The president’s decision to field Cristina is a strategic move to extend his time in power. This way Cristina can remain in office for up to two terms, and he can then follow up to finish his second term afterwards. Crisitina would also implement many of the pending reforms, such as the liberalization of prices and the final restructuring of the external debt, without tarnishing her husband’s reputation.
ARGENTINA NEEDS CHANGE
Nevertheless, Argentina needs a change in direction.
It urgently needs to liberalize its internal price regime. The heterodox policies implemented in the wake of the 2002 crisis are having serious ramifications for the economy. The fixing of meat and energy prices incentivized producers to reduce production and slash investment. Now, Argentina, a country with abundant meat and natural gas supplies, is facing shortages in both. A severe cold snap at the end of May forced the Argentine government to cut gas supplies to Chile, in an attempt to meet the increase in domestic demand. There were blackouts in the outer parts of Buenos Aires, and there was some rationing of natural gas for automobiles. At the same time, Liniers, one of the largest meat wholesale markets in the world, is virtually empty. Many farmers are refusing to slaughter their cattle. Others are sowing their pastures for grain production.
The government is realizing that price controls were a mistake, and they are starting to ease their militancy. Interior Commerce Secretary Moreno, who was said to have once placed a pistol on his desk when negotiating prices with a major producer, appears to be softening his stance.
Although the electorate has no other presidential choice, due to the opposition’s disarray, the trouncing of the official candidate in the mayoral elections of Buenos Aires demonstrated
that the population was not unconditionally supportive of President Kirchner. Therefore, the elections are arriving just in the nick of time. It is time to modify the economic model. The election of Cristina Kirchner may be just the right catalyst to do so.
Walter Molano is head of research at BCP Securities.