G. Breuer's Newsletter
August 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
The past month was very active politically. Despite the clear results of the June 28 mid-term elections, in which the ruling party suffered a harsh defeat all over the country -70% of voters rejected the Kirchnerite so called “model” that Mr. Kirchner himself called to vote in favor-, the official Victory Front and its maximum authorities -the Presidential couple- seem not to have taken note.
And the worst fears of the opposition became true: the Ks set an agenda to send to Congress all the legislation that they know that after Congress reflects the new composition they will not be able to pass, all as if June 28 elections had not taken place. It is necessary to remember that it was a Kirchner’s idea to advance elections four months.
Thus, the main political news of this month are related to the Congressional activity during the months which remain with the old composition of Congress and the pressure that the Ks are exercising over Congress to pass laws that are critical in their project.
The first such piece of legislation was the extension of the delegation of power from Congress to the Executive Power on certain matters, the most notorious of which was to tax exports. The extension of those faculties ended by August 24, 2009. If nothing had been done, the Executive Power would not have been able to tax exports in the future and only Congress would be able to do so, as it happens with the rest of the federal taxes.
A draft legislation was sent to Congress delegating for one year the extension of delegation of abilities. It was passed with the votes of the official party plus a number of allied parties. The most notorious event in the treatment of this draft was a suspicious vote of an opposition senator from Santa Fe in the relevant Senate Commission, which was necessary for the draft to be treated and approved. Many spoke of a dubious cooptation as the ones that the official party did in the past. In the end, the official party passed the draft into law and thus ensured for another year the key export taxes.
In the meantime, Congress had approved an emergency law for certain geographical areas of the Province of Buenos Aires (22 districts would be exempted of the export taxes) and Ms. Kirchner vetoed such law. That veto prompted another farm strike that is currently undergoing. And the tension with the agricultural sector continues.
It could be argued that the extension of duties needed to be taken to Congress since those faculties ended in August. But three other key pieces of legislation have been sent to Congress to be treated in the remaining time of the old Congress when there was no deadline: the TV and Radio Legislation or Media Law, the urban lease draft legislation and the agricultural lease legislation. There is a reason behind this rush.
With respect to the Media Law, most of the members of the opposition and of the independent media companies attribute the sending of the draft legislation to a now open and overt dispute of the Kirchners and its official party with the giant media group called Clarín, that controls the main cable company, and many radio and TV stations of the country, in addition to the widest read newspaper of Argentina, called Clarín precisely. The dispute mainly arouse during the 2008 farm conflict, where Clarín media companies showed the discontent of the people of the inland and according the Ks, that turned the public opinion against them. At that time, Mr. Kirchner started to attack the Grupo Clarín (Clarin Group) directly in public events and minor attacks were directed to that Media company officers.
The results of the elections did not hinder the Ks and they stroke Clarín a very important blow when they helped the Asociación Argentina de Futbol (AFA), the entity that controls the TV rights of first division matches in Argentina, to get rid of the agreement that linked it with a Clarín controlled company and that permitted such company the exclusive broadcasting of first division matches. The hand of the Government seems to be behind this contract termination and proof of that is that the Government executed an agreement with AFA, and it is broadcasting the matches itself and in open TV channels, putting a lot of funds in AFA, when poverty levels are grossly increasing. Panis et Circensis, old and obvious as the world itself, although the Panis part would be missing in this Administration, as many people say, since as reported, poverty levels do not stop growing despite the manipulation of the official statistics entity (INDEC).
Of course this is not the end of the story. The Clarin Group linked company may likely sue AFA, but in the meantime it lost plenty of income. And to add to the battle against Clarín, the new draft Media Law was sent to Congress. That law would force that current holders of licenses would have to request renovation permits every two years and that the total number of licenses owned by the same group would be limited, thus making that many media groups of the country would have to sell some of their licenses. Also, holders of open TV licenses could not hold cable licenses.
We need to say that the current Media Law is old and should be updated in many respects. But the timing and content of this draft, coupled with the Kirchner precedents with the media, are simply too suspicious to be given any credit at all. Even, many people say that the battle against Clarín is a battle for Mr. Kirchner to come back in 2011, since if it silences the media he will try to influence public opinion in his favor. Any decent Congress member should simply refuse to accompany this clear attempt to silence a media group that has been exercising its right to voice opinions of people not agreeing with the Government. Most of the opposition is taking this stance but the luck of the Media Law it is still not clear and it may pass.
We need to say that the Clarin Group has been alleged to have obtained benefits from other Governments in the past and from this one also (Mr. Kirchner approved a very suspicious merger between the two biggest cable TV companies of Argentina to please Clarín) and certain corrections in the concentration of licenses certainly needs to be made, but for sure -as the opposition says- in this case the medicine may prove much worse than the illness itself. Medicine and treatment we need, but not from these doctors.
As to the leases draft laws, one of them seem to be drafted to intervene in the active and efficient land use that agricultural companies make in Argentina. No problems have been raised at all, and the sector during the good recent years prospered with the current law. The proposed draft aims at limiting the ability of groups to rent from the same owner and place certain other limits. According to members of the agricultural groups, the draft is aimed at dividing the agricultural organizations, but all of them have rejected the draft as inconvenient. The urban leases law has also been rejected by most of the opposition members as inconvenient since it will take many apartments from the market thus damaging more the ones that it formally it aims to protect.
The question that needs to be made is why these drafts are sent right now and rushed into laws. It is clear that the current composition of Congress does not represent the current distribution of political power in Argentina.
There are many laws that are also important that may prove fatal for this Administration if not approved, such as the case with a tax on electronic devices with which the bad numbers of this Administration will try to be helped. It is unclear how this key laws will be dealt with in Congress. All important political parties are in internal turmoil and are choosing figures who would guide them to the next presidential elections.
But overall, it is very strong in Argentina the idea that the current official party has shown a side that many suspected but that now is overt. And that is not a good side. There will be no dialogue at all, things are the way in which the Government wants or they are not at all, and even though the Government lost favor with the people, it still keeps the ability to oppose and it knows how to use it well.
As some journalists put it, Argentina politically may be running fast to the cliff. Lets all hope for the best.
The main economic news this month are linked with inflation linked bonds swap and IMF negotiations. INDEC continues to be a problem.
In recent days Argentina launched a swap of 8.3 billion Argentine pesos in short-term inflation indexed bonds and that it will close on September 7, 2009. The Government is looking to swap the controversial inflation-indexed CER Bonds for a 2014 security as it seeks to ease a financing crunch by extending maturities.
A third of Argentine debt is linked to the inflation. Te swap will include Pre-9 and Pre-12 paper, which can be exchanged for Bocan 14 securities bearing a bank market-based interest rate plus 275 basis points. Prices for government bonds traded over-the-counter in Buenos Aires inched up 0.2 % on average in expectations over the swap but in recent days the relevant bonds have been drooping in value placing some doubts on the success of the exchange.
Also of note, is that Argentina is talking with the IMF as to a likely limited auditing of the economy. The idea would be that Argentina is back on the financial markets and that important aspects of the economy are solved, the Paris Club and the debt with holders of debt that did not enter into the prior exchange. The negotiations seem to advance, albeit a little slowly.
The purpose of the IMF approach is to diversify the financing sources for the State.
In what relates to State financing sources, after nine month of the nationalization of AFJP (Retirement and Pension Fund Administration) funds, the head of Social Security Agency (ANSES) informed to the Bicameral Commission that the Social Security Sustainability Fund (FGS) controls investments for 120 billion pesos in the first half of 2009. Of the total amount, about the 60% of the funds are made up of public credit lines issued by the Government, clearly showing what is the most important supporter for the State.
Despite the promises of taking steps to increase INDEC’s credibility, the official statistics office reported a July inflation (IPC) increase of 0.6%. Indeed, this figure failed to persuade economists that authorities are taking real actions to restore credibility to IPC. July’s figure was well below private estimates of 0.9% to 1.2%.
Argentina’s economy shrank for the second consecutive month in June in its sharpest fall since November 2002 as consumer spending and industrial production decreased. INDEC revised downward its May economic activity measure from 0.0 %to 0.3 % fall. This data has come in above analysts’ expectations.
As to specific data regarding the course of the economy, the slow economy continues. Argentina’s primary budget surplus shrank around 80% in July from a year earlier, marking the eighth straight month of worsening budget results.
The trade surplus expanded by 36% in July from the same month a year ago to 1.315 billion US dollars as slowing demand sent imports tumbling. The reasons for such expansion are mainly none other than a sharp decrease in imports, which is indicative of a slow economy.
Argentina’s industrial production fell 1.5% in July from a year earlier, resuming a streak of negative results that was broken in June, and unemployment rose in the second quarter. Car manufacturing plunged 23.6% in July from the same month last year, while textile output fell 8.1%, but food and cigarette production rose 4.7%. It should be taken into account that this information was provided by INDEC which is a state bureau that is questioned on its releasing information -credibility- for more than two years.
As seen, the economy is still in the midst of difficult times although hope can be seen at the end of the tunnel. The tunnel could be much shorter if the Government paid a little attention to what most of the economic sectors are asking for the Argentine economy.
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.
For more information on local legislation, you may read the August 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.
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© G. Breuer, 2009.