| BUENOS AIRES
BUENOS AIRES Jan 3 Argentine President Cristina
Fernandez is under pressure in an important election year as
sluggish economic growth and high inflation fuel labor unrest
and middle-class discontent with her combative style.
Tight finances have prompted the left-leaning president to
pursue increasingly heavy-handed policies, such as a virtual ban
on foreign currency purchases, which have hurt her approval
ratings over the last year and ruffled financial markets.
Several large anti-government protests, trade union marches
and a wave of supermarket looting late in 2012 have set the tone
for what looks like a testy run-up to October's mid-term
Investors will be closely watching the next steps in
Argentina's efforts to fight a U.S. court ruling that could
eventually force the country to pay "holdout" creditors owning
bonds in default since 2002.
A U.S. appeals court granted Argentina a reprieve in late
November that quelled fears of an imminent default and scheduled
oral arguments in the case for Feb. 27.
That court ruling, and a separate decision ordering the
release of a naval ship seized in Ghana on behalf of holdout
creditors, were bright spots for Fernandez's government as it
wages several noisy political battles at home.
Her efforts to force Argentina's largest media conglomerate,
Grupo Clarin, to start selling off broadcasting
licenses to comply with a controversial anti-monopoly law have
been frustrated by the courts.
An appeals court is currently considering Clarin's argument
that the law violates property rights enshrined in the
constitution. A ruling that is unfavorable for the government
would likely fuel tensions with the judiciary and could lead to
government-backed reforms of the courts.
Here are some of the issues investors are watching:
LEGAL BATTLE WITH HOLDOUTS
U.S. Judge Thomas Griesa ordered Argentina in November to
make provisions to fully pay so-called holdout creditors who
rejected two restructurings of defaulted bonds and continue to
seek full repayment in the courts.
It was a sharp blow to Argentina's efforts to put the 2002
default behind it. A subsequent appeals court stay on Griesa's
payment order brought temporary relief to financial markets and
to the government, at least until the hearing in February.
Argentina's next payment on the exchange bonds will be $180
million due on March 31, according to court filings.
The U.S. 2nd Circuit Court of Appeals has already backed an
earlier Griesa ruling that Argentina violated the "pari passu"
bond provision requiring it treat all creditors equally when it
paid the exchange bondholders without paying the holdouts. He
said they should all be paid simultaneously.
Participants will present their arguments in written filings
in the run-up to the Feb. 27 appeals court hearing. Argentina
filed its presentation on Dec. 28, with exchange bondholders and
other interested third parties due to file by Jan. 4 and the
holdouts by Jan. 25.
In its filing, Argentina stressed the potential impact of
Griesa's order on U.S. banks and clearing houses involved in
payments on the country's restructured debt, as well as its
possible implications for future restructurings.
It also said it was willing to ask Congress to suspend the
so-called Lock Law and reopen the restructuring, allowing
holdouts to be paid under the same terms offered in the swaps of
2005 and 2010.
If the appeals court upholds Griesa's payment order,
Argentina's last remaining option would be to appeal to the U.S.
Supreme Court. An unfavorable ruling would revive default fears.
What to watch:
- Government asking Congress to amend the Lock Law to allow
the restructuring to be reopened. Argentina would only reopen
the debt swap to the holdouts if the appeals court said that
would be an acceptable payment option.
- Details of remaining filings to the appeals court.
POPULARITY AND ELECTIONS
Fernandez has not anointed a political heir and analysts say
she may want to keep speculation alive about a re-election bid
in 2015 to maintain her grip on the notoriously fractious
Peronist party and ward off "lame duck" syndrome.
Her approval ratings suggest she would be unable to secure
the two-thirds congressional majority needed to convoke an
elected constitutional assembly to reform the constitution to
run for a third consecutive term.
The outcome of legislative elections in October could prove
decisive, either allowing her to clinch the two-thirds support
or weakening the current congressional majority that has let her
pass controversial legislation with ease.
With a re-election bid looking less likely, several Peronist
party figures are being tipped by local media and analysts as
potential presidential candidates in 2015.
The most prominent is Daniel Scioli, governor of the
province of Buenos Aires. Scioli remains loyal to Fernandez
although he has admitted he would like to run for the presidency
if she did not.
Scioli has received a nod from former Fernandez ally Hugo
Moyano, who leads the anti-government faction of the CGT labor
federation that has led several large labor protests in recent
months. Fernandez blamed Moyano and other Peronist rivals for
fomenting the supermarket looting in December.
Cordoba governor Jose Manuel de la Sota, an opposition
Peronist, bills himself as a possible challenger.
Fernandez's approval rating slipped by 1 percentage point to
30.6 percent in November from a month earlier while her
rejection rating rose 3.6 points to 62.9 percent, according to
the latest poll by the Management & Fit consultancy.
What to watch:
- Any clearer signs of government thinking on strategy for
the elections and on whether constitutional reform is still
considered an option.
- Key economic indicators showing that the slowdown may have
bottomed out, which could lift Fernandez's popularity.
CURBS ON DOLLARS, IMPORTS
Sweeping controls on imports and foreign currency purchases
are angering some trade partners and hitting investment.
The crackdown on dollar-buying shook financial markets in
October when the central bank refused to let Chaco province buy
dollars on the foreign exchange market, so the northern province
repaid creditors about $260,000 in pesos on dollar bonds issued
under local law.
The currency controls have succeeded in keeping dollars in
the country, however. Argentina's capital outflows came to a
halt in the third quarter from a year earlier.
Early last year, Fernandez's government also launched a
system to pre-approve, or reject, nearly every purchase from
abroad as part of a broader crackdown on imports. The policy
aims to protect the trade surplus and local jobs.
November's trade surplus widened by 74 percent as imports
fell 6 percent.
The government has been pushing importers to match their
purchases abroad with exports, leading to quirky deals such as
carmakers exporting rice or wine and prompting several
complaints against Argentina at the WTO by trade partners who
were also rattled by the sudden nationalization of leading
energy firm YPF this year.
Despite investor jitters over the takeover, YPF signed two
preliminary investment deals with Argentina's Bridas and U.S.
oil major Chevron last month to develop shale resources
What to watch:
- Trade balance and any sign import controls are being eased
to boost local industry.
- The black market exchange rate as the summer
hemisphere holiday season boosts demand for dollars.
- YPF's progress in attracting foreign capital to fund its
multibillion dollar plan to boost output by a third. Further
details of two preliminary farm-in agreements.
The government said in its 2013 budget that the economy
should grow 3.4 percent this year and 4.4 percent in 2013. Those
levels would trigger payments on the country's growth-linked GDP
An improved economic outlook would be good news for the
government as it gears up for the election to renew half the
seats in the lower house and a third in the Senate.
However, most analysts expect the government to end up
reporting economic growth below the 3.26 percent warrant payment
threshold. The central bank has lowered its growth forecast for
2012 to 2.0 percent, with a rebound of 4.6 percent seen this
Falling short of the payment threshold would free up some $4
billion for spending in an election year, although Economy
Minister Hernan Lorenzino has said it would only be used for
Despite sluggish growth and an ever-tougher business
environment, consumer confidence rose 8.7 percent in December
compared with November. But it was down 11.7 percent
year-on-year, according to the latest survey by Torcuato Di
Inflation, which private estimates say is running at about
25 percent per year, will come in focus again as wage
negotiations begin over the next few months.
What to watch:
- Industry and economic growth data
over the coming months for clarity on GDP-warrant payment.
- Changes to tax regime such as a raising of income tax
floor, a central demand of opposition unionists such as Moyano,
that might avert further labor protests.
- Union comments on wage demands, signs of differences
between government and allied labor groups.
(Editing by Kieran Murray and Lisa Shumaker)