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G.BREUER DESDE 1869 |
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G. BREUER's Newsletter August 2008 |
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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 (joo@gbreuer.com.ar) and Diego Fissore(dfissore@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
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The main political news of this month seems to be still related to the aftermath of the farm crisis and its possible effects, although that is not what appears necessarily in the front pages of the main newspapers. As usual, the most important news of the month has to be found hidden behind those front pages. We start by mentioning that nothing has changed in the Government after the farm crisis. A couple of make-up changes, but even those are over now. Most of the same names remain in power and doing basically the same. So, in this Administration, all changes are said to be make-up ones. As to the hidden news, we mention first the Aerolíneas Argentinas crisis, which is the flag airline. This company is in technical state of bankruptcy and the ruling party sent a bill to acquire the ownership of its shares. Basically, the bill contained the approval of an agreement between the ruling administration and the current owners of the majority stake of the airline to cover costs during a 60-day transition period. And it was not clear as to how and when the ownership would be transferred. It was not clear either the price of the acquisition and -if the agreement was ratified- it was likely that the massive debt acquired by the airline would have to be faced by the State -900 million US Dollars, approximately-. Considering the behavior of the majority during the farm bill vote in Congress, it was by no means clear how the vote would go this time. Considering that an important group of members of the ruling party in Congress were not ready to support the bill as it came from the Government, many and very substantive amendments were introduced to the draft legislation. Such amendments were of an extent such that the original bill was totally changed. And only then it was approved, although with the rejection of most of the opposition parties. The fact that the bill was totally amended speaks volumes as to the decrease in the executive power dominance over Congress. Mrs. Kirchner’s administration cannot afford any other congressional defeat and because of that now the loyal representatives have more power even than the most powerful ministers in order to make amendments to bills. That shows that the center of power appears to have shifted in Argentina. That is the hidden -although widely known- news behind the Aerolíneas crisis. We have to mention that the bill, even as approved, is not a clear one as to the future of the company and as to the convenience of the solution proposed by the ruling party. The bill is now in the Senate and for sure the saga is not over. What is sure, however, is that a difficult time is ahead for the company since its acquisition price, the situation of its indebtedness and its operations are not resolved yet. The Administration, which now claims that the company has been run in a terrible manner, did not say a word for years of such problems, and it will not be easy to obtain a single peso for the airline given that Argentines are already facing inflation problems, rising taxes and corruption scandals. If funds are spent and the solution does not arrive, as it is likely to happen, the political cost will be too high for an Administration already facing heavy scrutiny. We also mention, as a very important development, a piece of information that would not make it to this newsletter but for its possible political consequences. It has to do with the assassination of three young persons, who appeared shot in lonely road in the Greater Buenos Aires area. One of them, a young professional heading a pharmaceutical company, had made important contributions to Mrs. Kirchner’s presidential campaign, while alas! his company was bankrupt. Another young professional linked to the pharmaceutical industry, also bankrupt and a heavy Kirchner contributor, committed suicide at the end of this month. All of the criminal events are said to be linked to Mexican drug cartels and the illegal commerce of substances used to produce illegal drugs. The opposition is requesting information about these events that are as obscure as a script of a terror movie, a comparison that Mrs. Kirchner herself liked to use in the past. Certain few things are behind the headlines, but one is for sure: this administration would need to explain a lot about the funding it received for the presidential campaign, starting with Mr. Antonini’s suitcase, the pharmaceutical crimes, and the contracts of the young bankrupt -now dead- businessmen with official institutions. Are all of these events linked? Will there be explanations? Will the Argentines believe them? The real situation may be more obscure than it seems. Another piece of information that is worth noting -and that was not a headline- is that this Administration is speaking of not renewing the “superpowers”, which is a legal resource that allows the Chief of Staff to reallocate any account it wants of the national budged as approved by law. Those powers turned the national budget into only a simple “optional” list for the Executive Power. Thus, the money could be redirected to friends (governors, among others) and then political loyalties could be assured. But the times have changed with the “non-affirmative” vote of Mr. Cobos and the situation now is not for more open accumulation of power to ensure political favors. So, this administration is planning to make virtue of necessity -as newspapers are calling- and it is likely to announce a relinquishment of those powers. Let’s hope that takes place, for the sake of the country. And also let’s hope that this Administration will not find other ways to ensure that the “superpowers” are ensured through other means. Everyone will be watching. To end this report, we say, as in the beginning, that politically the Government only made cosmetic changes. No others. New problems arose, as the ones mentioned in this report and solutions were not found. For instance, the farm sector continues to be in deep crisis due to the policies implemented by the Kirchners’ administrations and instead of solutions, announcements were made. This may be the real news: nothing happens behind the announcements… until something really happens. Because it continues to be true that real problems need solutions, not announcements. It is not easy to report the state of the Argentine economy, since the official indexes are widely discredited. And there is concern about the ability of the Administration to obtain financing to face commitments. Tax revenue is said to have risen 33% in July from a year earlier to 23.19 billion Argentine pesos, partly fueled by sales tax receipts swelled by high inflation. The month’s collection of VAT related to strong consumer spending, which is also lifted by inflation, rose 21.7% for last July. The Kirchner Administration has been reporting that annual inflation has been running at about 9%, while most private estimates range between 20 and 25%. Inflation expectations for the next 12 months hover around 30%, according to private polls, showing widespread disbelief in government data. Some indicators have shown signs of an economic slowdown, particularly in June, at the height of the farm conflict. Analysts also blame high inflation for hurting consumer spending and investment. After this news, we mention that, as it is widely known, Standard & Poor´s downgraded Argentine sovereign debt ratings from “B+” to “B” -five levels below investment grade-. Bond prices were also hit by news that the country had sold seven-year bonds to Venezuela at yields above 15%, among the highest in the world. Venezuelan banks sold those bonds in the market the following days and then their prices plummeted. That forced an Argentine plan to repurchase those bonds, which so far only had partial effects. Reality tells that Argentina is facing very difficult times in financing itself and sooner rather than later it will have to come to an arrangement with the Paris Club, at least. Moody´s Investors Service also revised its own sovereign credit rating outlook for Argentina to stable from positive, citing “political volatility and contentiousness” as the reasons for the move. Certainly, the Argentine Economy will face difficult times. Announcements about the Paris Club debt may come. Also, the utility rates situation and increases in salaries due to inflation may remind this Administration that problems have to be faced. Commodity prices are very unstable and the current policies in this field are widely known for their failures. Let’s all hope for the best. You may read the August edition of our Boletín Informativo, G. BREUER’s monthly publication focused on general legal information sent to our Argentine clients & friends. |
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For more information on local legislation, you may read the August edition of our Boletín Informativo sent to our Argentine clients & friends. |
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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 bulletin, or if you think someone else in your organization should be receiving it, please reply to this link.
© G. BREUER, 2008 |
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