G.BREUER
DESDE 1869
G. BREUER's Newsletter
April 2007
Dear Clients & Friends,
We are sending to you the monthly edition of our Newsletter where you will find an update on:
Hoping that you find this issue as interesting as our previous ones, please do not hesitate to contact partners Jorge Otamendi (joo@gbreuer.com.ar) and Alberto Navarro (anavarro@gbreuer.com.ar) for any specific question you may have after reading it or for any other issue you may need advise on.
Best regards,
G. BREUER
25 de Mayo 460
Buenos Aires - Argentina
Tel: +54 114313 8100
Fax: +54-11-4313-8180
Other than -or in addition to- the coming elections in Argentina, two pieces of news with strong political impact are worth reporting this month. First, there were plenty of changes among officials of the National Institute of Statistics and Censuses (INDEC) who were in charge of preparing the most relevant financial and consumer price indexes of Argentina. Also the unfortunate death of a school teacher took place at a demonstration in the Province of Neuquén.
Both matters are somehow connected with the increase of the cost of living reflected by the Consumer Price Index (CPI), reported every moth by the INDEC.
As we have been informing on previous editions, the increasing inflation is a major political issue on President Kirchner’s agenda in view of the forthcoming October presidential elections. As a matter of fact, President Kirchner’s concern about inflation reached unpredictable levels and he decided to reshuffle INDEC’s officials who were in charge of preparing the CPI, allegedly because his independence and performance were not well regarded by the Domestic Trade Secretary (the entity in charge of the Government’s anti-inflation crusade).
From the very first moment in which the original INDEC’s head was removed, every major index announced by the Institute gave origin to a polemic among specialists as to the accuracy and credibility of the relevant indexes. A recent dispute emerged when two different inflation rates were announced within the same week by the INDEC itself, the last one “correcting” the originally announced index for “technical” defects. Curiously enough, the first index amounted to 3.6%, and the “right” one to 0.2%. The “technical” problem was that the first index had been prepared using wrong information. Regardless of who is right or wrong, this episode is a clear example that the credibility of INDEC’s indexes is very much under discussion.
Also, regarding this issue, it is worth referring to the IMF report stating that price controls should be abandoned and raised concerns as to the real inflation in Argentina. The IMF said that annual inflation rates in 2008 in Argentina will be around 12.7% and such rate may be the beginning of galloping inflation rates. Then, the fund advised that Argentina should use all instruments of macroeconomic policy to reduce inflation. The government addressed this statement by saying that inflation is the cost of a 9% growth in the last years.
The inflation factor will continue to be important as elections approach.
As we anticipated, the other important political event of the month is related to the death of a state schoolteacher, killed by a policeman while trying to break up a roadblock in the province of Neuquén, a rich oil state in southern Argentina. The school teacher was demanding –together with the members of his union- a salary increase from the Province.
This death caused great impact on the entire country and, in an election year, every sector tried to take advantage form it, or to gain distance from the responsible parties, allegedly the Neuquén police force and the current governor, Mr. Sobisch, one of the center right politicians hoping to be president of Argentina. Mr. Sobisch is now alone in that front, and almost all of his allies are busy trying to separate from him.
Aside of the totally avoidable and regrettable death itself –that simply should not have taken place-, it is important to know that the salary increase that originated the demonstrations leading to the death of the schoolteacher was announced centrally by the federal government without checking with the provincial states whether they were financially able to afford the salary increase they would have to face. Allegedly, such announcement was made to foster the chances of his candidate in the City of Buenos Aires, who is his not-very-popular federal Ministry of Education. Immediately, all teachers throughout the country started demonstrations in order to demand their provincial governments –which have never announced anything- a raise in their salaries.
This is a good example of how far someone can get to win an election, and the consequences that have to be faced because of election promises. As a result, and despite the efforts of Mr. Kircher’s aides, the death of the school teacher became a National issue and not only Neuquén’s authorities are deemed responsible for such unfortunate death.
All independent observers are starting to see that the escalation of violence generated by a system in which all claims are taken to the streets and in which all promises can be made regardless of any serious study as to the possibilities of their fulfillment will not take Argentina to a place where anyone would like it to be, even the persons with important roles and who make the promises.
Hopefully, reason will prevail and all parties will stop the escalation.
As we anticipated in the Political section, the IMF released a report stating that Argentina should experience a 7.5% growth this year as compared with the 6% forecasted in September, and that the Argentine inflation rate should be 10.3%, as compared with September’s 11.4%. The report also aid that inflation in Argentina should be 12.7% in 2008.
Current Central Bank reserves are 37.4 billion US Dollars, one of the highest international reserves in history held by the Central Bank. The highest level ever was January 2001, with 37,380 billion US Dollars, but this time none of those reserves come from financial aid, as it did in the past.
Finally, it is worth pointing out that the Kirchner Administration authorized a retroactive hike in gas prices for the Province of Buenos Aires. The increase is of 14% on average, with minimum billing rising 33% and all backdated to November 2005. This measure was challenged by Argentina’s National Ombudsman Eduardo Mondino on the grounds that the bill was sent to Congress where it did not obtain approval. Eduardo Mondino said that despite Congress’ disapproval, the government implemented it through a legal strategy that is clearly unconstitutional.
Despite the challenge, the fact that a utility rate increase has been authorized may be a clear indication that this administration is starting to see that if utility rates are not increased, investment will not come and the bottleneck in the infrastructure sector will be so important that a collapse in several sectors may take place (roads, electricity, and natural gas, particularly). And if such collapse happens, the political costs will be too high to face.
On March 3, 2007, the Executive Power issued Decree No. 204/2007, regulating Law No. 26,222 approved by Congress. Those legal pieces implemented a reform to Argentine pension funds.
On Thursday, April 12, the government officially opened the 180-day period in which pension plan contributors will have freedom to choose between being transferred to the state share-out pension system or remaining in the private-funded AFJP capitalization system.
Some see these laws as an attempt of this Administration to control still more funds. It is too early to see how deep the impact will be on the capitalization regime. One good effect the law has had is that it will make pension plans take more care of their contributing members.
- Jorge Otamendi, partner of G. BREUER, participated as lecturer in the panel "Intellectual Property Issues in Advertising" at the INTA / ASIPI Conference 2007 held in Sao Pablo (Brazil) last March.
For additional information, please contact Jorge Otamendi (joo@gbreuer.com.ar).
- For more information on local legislation, you may see the April edition of our Boletín Informativo sent to our Argentine Clients & Friends.
G. BREUER
25 de Mayo 460
Buenos Aires - Argentina
Tel: +54 11 4313-8100
Fax: +54 11 4313-8180
Please note that the information given in this bulletin is for general purposes only and does not aim to provide comprehensive legal advice on any issue.
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© G. BREUER, 2006