G. Breuer's Newsletter
April 2009
Dear Clients & Friends,
We are sending to you the monthly edition of our Newsletter where you will find an update on:
Please do not hesitate to contact partners Jorge Otamendi and Diego Fissore 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 11 4313 8100
Fax: +54 11 4313 8180
All pieces of news these days are political. Even the dengue epidemic, that for the first time in decades appeared in Argentina due to the lack of timely prevention from provincial and federal Governments. Of course, the information related to the June midterm election race is profuse, and the flow of news is so constant and varied that at certain point is causing exhaustion in the public. The flow of news is not -of course- referred to the proposed policies by candidates, but to agreements and tactical movements between the official and opposition parties.
If there is one piece of news to point out this month, it would be the “testimonial candidacies” announced by the official Victory Front in the Province of Buenos Aires, which is said to be an authentic creation of its president, Mr. Kirchner. The official party in the Province of Buenos Aires, by far the most important district of the country, will propose candidates that from the very beginning announced that they will not assume their positions if elected, and only will run to request support from the people and somebody else will take their place in Congress. So nobody knows who is voting for. Mr. Kirchner thus called in his help the most popular figures from his party in the territory of the Province of Buenos Aires, like the Governor, and holders of municipal positions, all members of the executive power at provincial or municipal levels, all holding presently other elected positions.
Needless to say, this “creation” is barely -if at all- constitutional, and challenges were presented by some opposition parties in this respect. But the sole idea that a candidate openly declares that he will not assume if elected and that he only appears to request votes, gives an idea of a crooked and poor conception of democracy, almost as if democracy were an empty procedure just to elect people and nothing more. This seems to be the idea that the Ks have on the matter, and it is converting Argentina only into a formal democracy.
Also needless to say is that the testimonial candidacies appeared because the image of Mr. Kirchner, supposed first candidate as representative in the Province of Buenos Aires, is really not doing well in opinion polls and it may get much worse closer to the elections.
The opposition parties in that district (Civic Coalition & Radical Party on one side, and Dissident Peronists on the other, headed by Mr. De Narvaez in that district) are growing at high speed in the polls and are threatening the Government’s lead in the only sector of the population where it was performing well, that is, the poorest districts of the Great Buenos Aires area. The inland of the province really may give the ruling party a strong defeat due to the close identification of those regions with the agricultural sector, the preferred nemesis of this Administration, although lately the Government is choosing other fronts, like companies with shares in the hand of ANSES (Argentine Social Security Administration), formerly AFJPs (Retirement and Pension Fund Administration).
Also the “testimonial” candidacies are aimed at stopping poll jumps from sides from the “Great Buenos Aires Barons,” from the ruling party to the dissident peronist side, although it is not clear whether these candidacies will bring Mr. Kirchner the desired “loyalty,” a rare commodity in politics. These candidacies may accelerate the end.
The rest of the important jurisdictions in the country -highly populated areas- are already an announced defeat for the Ks. In Córdoba, City of Buenos Aires, Mendoza, Santa Fe and Entre Ríos, either they lose by astronomic differences to an opposition member or to members of the dissident peronists that decided to take distance, and real distance, that is, from the Ks.
For instance, Senator Carlos Reutemann confirmed he will seek his re-election to the Senate, and if he performs well in his Santa Fe district, he announced that he will be a presidential candidate. He has big support in Santa Fe and is one of the most popular politicians of Argentina.
Also, as said, dissident peronists Francisco de Narváez and Felipe Solá -who broke away from the official party last year-, and Buenos Aires Mayor Mauricio Macri, Leader of the PRO, will challenge the governing party in the City and in the Province of Buenos Aires. Messrs. de Narvaez and Solá aimed at being elected representatives for the Province of Buenos Aires and are each day cutting distance with the official party candidates and even some polls place them today as tied. The PRO is running in the City with Gabriela Michetti, a very popular city lieutenant-mayor, who is said to have a very strong difference from the second contestant, who is also an opposition member. In the City of Buenos Aires, the ruling party may not reach even the 10% threshold.
In the Córdoba Province, the Civic Coalition and the Radical Party compete and together are likely to have more than 50% of the votes. And only third and far behind may come the current Governor, who is a peronist but who distanced himself from the Ks. Mendoza is the Vice-president’s land -a strong opposition of the ruling party- and there his Radical Party is poised to win.
Thus, according to the voting intentions as of today, the ruling party is set to lose in the City of Buenos Aires and in the Province of Mendoza, it will do poorly in the provinces of Santa Fe and Córdoba, and in the Province of Buenos Aires, the dissidents De Narváez and Solá on the one side, and the CC & UCR on the other, may well outnumber the “testimonial K candidates” -whoever they are-. Thus, so far, no good news for the Ks, but elections are two months away, and that is like a century in the always hectic Argentine political time.
So, the official FPV control in Congress may be at an end. The ruling party knows these numbers and even though not acknowledging them, it may try to push legislation prior to the change in Congress opposition. With the precedents we have -AFJP Nationalization Law, superpowers, among others- Argentines should fasten seatbelts because future months will be bumpy times in Congress. And the scenario is no better if the ruling party wins.
The economy news are very linked to the political process described in the preceding section.
And the numbers are not looking good.
For instance, the Industrial Union (UIA) forecasts that this 2009 industrial production will drop more than 10% as compared with 2008. UIA requested the Government to adopt measures to generate confidence both from consumers and from the business sector to help improve the prospects for recovery.
Also, according to INDEC -official statistics bureau-, inflation in March was a slightly higher than expected 0.6%, fueled by rising costs in education and the health care sector. As usual, the official estimation is around half of the inflation reported by most of the reputable private firms of Argentina that placed inflation in around 1.2% in March 2009. Other relevant indexes show that sales at shopping centers dropped 5.6% according to some private consultants (INDEC showed an increase of 0.3%).
It is worth mentioning that the government is still accused of under-reporting inflation to tame expectations and reduce payments on inflation-indexed bonds, which represent about 40% of the country’s total debt burden.
The information provided herein so far indicates that Argentina may be heading to “stagflation,” which is the combination of inflation with recession, one of the most feared scenarios for economists.
In addition, figures included in the quarterly exchange balance allowed analysts to inform that 5 billion US dollars left the system during the first three months of the year, which shows the high level of mistrust that the local public places in the current management of the domestic economy. This constant outflow of funds, which became a very important issue after the AFJP Nationalization at the end of 2008, is very likely to increase the pressure on the US Dollar.
Tax revenue is still showing a surplus, but if retirement contributions are left out of those revenues the surplus may disappear.
On the farm ground, this month concluded that the soy harvest and the numbers there are not that good at all. This year approximately 10 million tons less will be collected mainly due to the severe draught suffered by Argentina. The price of this commodity is increasing again and that may help to bypass the big losses of the sector during 2009. And the Government is already feeling the lower harvest through an expected decrease in the fundamental export taxes that are imposed on soy.
INDEC reported that Argentina’s industrial production decreased in March for a third straight month, falling 0.9% from a year earlier due to the complicated moments that the steel and automotive sectors are having worldwide.
All these numbers show a slowing economy, increasing inflation and problems all over in the more dynamic sectors of the Argentine economy.
The maturities that the Government will have to face during 2009 are plenty, and that is why the Kirchner Administration is trying to bring funds from multilateral organizations such as the IDB, the World Bank, and even some talk of a possible arrangement for the IMF, but this institution would like to review accounts prior to disbursement. Since funds from these organizations will be needed, news may soon be heard on these fronts.
On top of all of these, Argentina is heading to mid-term elections, and campaigns are likely to paralyze all important decisions, while the bad news do require urgent action. As it is frequent, reality and needs may force politicians to change their agenda. Let’s hope for the best.
You may read the April edition of our Boletín Informativo, G. Breuer’s monthly publication focused on general legal information sent to our Argentine clients & friends.
For more information on local legislation, you may read 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
Nota: Este es un servicio gratuito que proveemos a nuestros clientes & amigos. La información aquí contenida, de carácter general, no deberá ser considerada como asesoramiento legal específico.
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© G. BREUER, 2009.