Argentina: Policy directions after Sunday’s election

Argentina’s President Cristina Fernández de Kirchner is likely to lose her majority in Congress in a mid-term election on Sunday that could limit her influence over economic policy and the ruling Peronist party.

Her husband and predecessor, Néstor Kirchner, is seeking a seat in Congress and faces a close race in the country’s most populous province — a key electoral battleground and Peronist stronghold.

Here are possible scenarios on how the outcome could affect economic policy:

CONTINUED UNCERTAINTY NO MATTER THE RESULT. The Kirchners are known for erratic, unorthodox economic policies and policy-making will remain unpredictable whether they are viewed as winning or losing the election.

It remains to be seen whether the government will take steps to gain access to international credit markets to help it meet some 20 billion dollars in debt payments due by the end of 2010.

To return to credit markets, the government must restore credibility to its highly questioned economic data, which economists and analysts say overstate growth and understate inflation, poverty levels and joblessness.

To demonstrate goodwill to markets, the government must also repair relations with the International Monetary Fund and agree to an IMF economic assessment of Argentina.

But it is not clear whether there is political will to address the data credibility issue or the IMF.

KIRCHNER WINS BUT GOVERNMENT LOSES MAJORITY IN CONGRESS. The government would likely adhere to its policy of increasing the state’s role in the economy.

The government will cast a Kirchner victory, no matter how narrow, as a sign of public support for the policies since he would be the top vote-getter in the election.

The Kirchners have imposed price controls and export caps on agricultural products in recent years to slow inflation and nationalized several public-service companies.

A state takeover last year of private pension funds and the flagship airline, Aerolíneas Argentinas, rattled investors and business leaders.

A long-running dispute with farmers that has led to repeated sales boycotts against export duties could also flare again.

A KIRCHNER DEFEAT AND LOSS OF CONGRESSIONAL MAJORITY. Since the new Congress will not be seated until December, the government could brush off calls for change in economic policy and use the following five months to drive home its agenda.

Fernández could use presidential decrees to enact any politically unpopular measures or put pressure on companies or sectors through regulatory agencies to accept government actions.

If the Kirchners’ political power is significantly weakened, pressure could come from within the Peronist party for changes in economic policy, particularly on farm exports.

Many Peronist lawmakers from rural areas have sided with farmers’ calls for less state intervention in agricultural markets and lower export duties.

Tensions with the business community will likely grow as Fernández seeks to show she remains politically powerful by aggressively taking on big business.

In another approach, Fernández could shake up her Cabinet and seek broader consensus with political and business leaders on some issues of economic policy to help build support for her leadership.


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