G. Breuer's Newsletter
June 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
This month, politics dominates the news. On June 28, one of the most exciting midterm elections in recent history took place. Argentine voters were set to elect 127 national representatives -half of the Lower House- and 24 senators -one-third of the Upper House-. Also, half of the provincial and municipal congresses were to be elected. Naturally, the attention was focused mainly on the elections in the Province of Buenos Aires, and in the City of Buenos Aires and Santa Fe, where politicians with national reach were among the candidates.
These mid-term elections were really important because the Kirchner Administration, through Néstor Kirchner himself, attached to it the importance of a referendum on the course of this Government, and thus, the Kirchner survival depended on them. Also, analysts and the public in general made it clear that presidential ambitions in 2011 for many of the so-called candidates would depend on their showings on June 28.
Opinion polls prior to the elections were very many. Some of them indicated that in the Province of Buenos Aires Mr. Kirchner would be winning but by a very minor margin. Some others -less in number- predicted that the main challenger, Mr. De Narváez, a millionaire entrepreneur running in alliance with the party of the also millionaire Mr. Macri -major of the City of Buenos Aires- and with peronist dissidents, were set to win by a short margin.
It was clear that whoever won, it would be by a narrow margin. It was also clear that the ruling party was having serious difficulties in several sectors of the electorate. Urban middle class voters, clear majority in Argentina, had abandoned them several years ago and the differences with which the ruling party won in 2007 were obtained in poor neighborhoods surrounding the City of Buenos Aires, where the power is in the hands of the local governments that can direct votes through their influence. Due to their power, these local authorities are called the “Barons of the Great Buenos Aires area”, and they are a dangerous company to be with. Former presidents of Argentina, like Messrs. Menem and Duhalde, can be witnesses to the way in which they swindle their support and ruin political careers.
Mr. Kirchner, knowing the changing moods of the Barons, decided to increase the bet. He forced the Barons themselves -or their wives- to personally head lists, to avoid that they claim support for him but vote Mr. De Narváez. Even the Governor of the Province of Buenos Aires was forced to accept a candidacy as second representative, when that candidacy was frankly dubious from a constitutional standpoint. These candidacies were called “testimonial” since the candidates were not intended to assume their positions if elected; they were there just to attract votes. The move was of an audacity such that it gave a clear indication that Mr. Kirchner was putting all at stake and, to many, that manipulation of the law and of persons isolated his chances even more.
And what was more: Mr. Kirchner’s candidates could not walk, literally, the territory they were willing to represent. Every time there were campaign acts in the inland of the Province of Buenos Aires, -i.e., outside of the Great Buenos Aires area- incidents with people took place. But Mr. Kirchner trusted the Baron’s apparatus, probably because that was his only door open, or half open.
And election day came...
Mr. De Narváez obtained 34.58 % of the votes, and Mr. Kirchner obtained 32.11%. The Civic Coalition obtained 21.48%. That result, translated into normal language, meant that not only Mr. Kirchner himself and the Governor of the State lost, but that two out of three votes in the Province of Buenos Aires voted against the Kirchner Administration, and all that despite the almost illegal tactics they used to attack voters.
And the Barons proved that even their embrace may prove deadly. They managed to have their local tickets be elected by huge margins not leaving doubt of their territorial control, but left Mr. Kirchner’s candidacy to fight for itself. And Mr. Kirchner lost in many Great Buenos Aires territories or obtained too narrow margins to counterattack the harsh losses in the agricultural inland.
The result then is a total Kirchner loss. The faces appearing to acknowledge defeat (at 2.15 a.m., after more than 80% of the ballots had been counted) left little room to believe Mr. Kirchner’s words when he said “we lost by a minimum difference”. His face was showing that he knew he had the most powerful weapons of all, he did whatever necessary to win and even so he lost. That was clear to everyone, and he understood it well since the next day he resigned to his position as head of the Justicialist Party, the main arm of the ruling party and the weapon for the domination of the apparatus in the Great Buenos Aires area and for the designation of the next presidential candidate for that force.
The results, now with the dust settling, are logical. The agricultural conflict, the INDEC’s (official statistics bureau) lies as to the hidden inflation, the wasting of ANSES (Argentine Social Security Administration) retirement moneys, the refusal to dialogue with opponents, and the permanent confrontation, which were the pillars of this Administration, came to the voters’ minds at the right time.
But the Buenos Aires results were not the only bad news for this Administration.
In the Senate election in the Santa Fe province, Senator Reutemann won by a narrow margin. That win put Mr. Reutemann in a position to claim the leadership of the Jusiticalist Party. The party leaders, then, already have a head to take Mr. Kirchners’ place as powerful man. Mr. Kirchner was said to be willing that Mr. Reutemann did not win because, even if he lost, the absence of other winners may lead him to remain in a powerful position. But Mr. Kirchner’s desires were not fulfilled.
In the province of Córdoba, opposition candidates took the three senate positions and almost all representatives. The ruling party at national levels did not even obtain 10% of the votes. Almost, the same thing happened in the City of Buenos Aires, where Major Macri obtained 30% of the votes leaving the ruling party in fourth position.
And in the province of Mendoza, Mr. Cobos’ candidates, the Kirchners’ nemesis, took more than 50% of the ballots and doubled the votes of the ruling party’s candidates.
And finally, if something else was necessary, in the province of Santa Cruz, the ruling party lost by a big difference to a Civic Coalition opponent.
There is no doubt on that the results constituted a big hit to the ruling Victory Front. Most analysts and politicians are saying that the Kirchners’ time is over. Certainly, there are indications that it is true. Argentina, despite the complicated interpretations of the defeat issued by Mrs. Kirchner in a surreal press conference, seems to be heading to other places than those where the Kirchners want to go. According to many, from now on new realignments will come and the future, which necessarily will be complicated, will start to take shape.
The legacy of the Kirchners, after all the conflicts, pompous words, confrontations and lost opportunities, may end up being only the two remaining years of the testimonial -this time the word is well applied- Presidency of Mrs. Kirchner.
This month, the Argentine peso fell to 3.895 /3.90 amid heavy US dollar demand ahead of mid-term elections. It was its weakest level since June 2002.
Activity in manufacturing sector fell 3.2% in the first quarter as compared with the same period a year ago, while the service sector expanded by 4.7%. Consumer activity, which represents about 65% of the country’s GDP (gross domestic product), rose 1.5% year-on-year but investments sank 14.2% due mainly to falling investment in construction and capital goods.
Argentina’s industrial production fell for a fifth consecutive month in May, shrinking on declines in the auto and steel sectors.
The data released by the Government through the INDEC is highly questioned as you all know. Private firms release information on all of these indicators and the numbers are far less optimistic than those released by the INDEC.
What few deny now is that economy is in recession and that with the elections already behind, now the Government will have to face tough decisions.
The expense level is very high and it is not sustainable. Thus, increase in utility prices may come to decrease subsidies.
The public debt level maturing in 2009 will have to be faced, for which purpose this Administration may have to resort to the arches of public entities and banks.
And with an economy in recession, there is few room to increase taxes, particularly after having lost mid-term elections.
According to analysts, the Government may have two options. One of them would be being rational and facing problems in the orthodox way, and the other would be to continue the current policies.
So far, there are no indications which way it will take. In the next few days, decisions will have to be made as to INDEC, inflation policies, fiscal policies, and then the truth will emerge. Certainly next month this section will have plenty to report and the mystery may be solved already.
The difference between official and private numbers was evident this month when the FIEL Foundation said the drop in industrial activity in the January-May period was seven times lower than as reported by the government.
Argentina’s May GDP fell by 6.4% year-on-year, extending a state of recession that started out in the fourth quarter of 2008, and could hit a peak in the second quarter of this year.
The decrease in imports is also stated as a sign of Argentine recession.
Some analysts expect the Argentine economy to stabilize this year and return to growth in 2010 as farm production recovers from severe drought and the global grains price rise. However, this second semester is still immersed in a big uncertainty at political or at economic levels. Indeed, a report from the Catholic University reported that expectations in Argentina improved in May despite lingering concerns from employments, food prices and health services rates.
You may read the June 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 June 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 intend to provide comprehensive legal advice on any issue.
If you do not want to receive this newsletter anymore, or if you think someone else in your organization should be receiving it, please reply to mevillalba@gbreuer.com.ar.
© G. Breuer, 2009.