December 10, 2011 / 4:17 PM / 7 years ago

Argentine leader vows to fine-tune model in second term

BUENOS AIRES (Reuters) - Cristina Fernandez began a second term as Argentine president Saturday, vowing to fine-tune her offbeat, high-growth policies that please voters but spook investors.

Argentina's President Cristina Fernandez de Kirchner waves to supporters during a ceremony outside the Casa Rosada Presidential Palace in Buenos Aires December 10, 2011. Fernandez began a second four-year term on Saturday with a strong mandate to intensify the unorthodox economic policies that critics say have left the country ill-prepared for a global slowdown. REUTERS/Martin Acosta

Fernandez won a landslide re-election in October on the back of sizzling economic growth and a wave of sympathy following the death last year of her husband and predecessor as president, Nestor Kirchner.

Still dressed in mourning black, an emotional Fernandez addressed cheering supporters throwing tickertape from the balconies of the Congress building to mark her inauguration, defending Argentina’s model versus that of developed countries.

“They govern with growth targets for the financial sector and I want to make clear that we govern with growth targets for work and employment. These are at the center of our government and this will continue,” Fernandez said in her speech.

“Our national project will continue until not one poor person remains.”

Double-digit inflation, capital flight and tight finances are raising concerns about the sustainability of Fernandez’s big-spending policies as a worsening global outlook weighs on grain prices and reduces demand from neighbouring Brazil.

Factory output growth was significantly slower in October, a clear sign that Latin America’s third-biggest economy is cooling down.

Fernandez acknowledged Argentina would need to improve its competitiveness and announced she would create a new government office to do so but she appeared to rule out a sharp devaluation of the peso.

Investors big and small have been betting on a faster rate of currency depreciation to offset the impact of roughly 25 percent inflation, which has raised local production costs.

“Competitiveness is the great challenge we will face in the period ahead, improving competitiveness will not happen by joining those who devalue or by joining those who increase the debt load but rather by adding value, innovation, science and technology,” she said.

One of Fernandez’s first priorities will be to usher the 2012 budget through before the end of the year. With a majority in Congress, that should be a foregone conclusion.

An intense timetable in December also includes discussion of a bill to limit sales on land to foreigners and an amendment to tighten the money laundering law.

Fernandez, 58, is a center-left member of Argentina’s dominant Peronist party and rejects orthodox belt-tightening measures, saying they stifle growth.

Argentina's President Cristina Fernandez de Kirchner greets supporters as she leaves Congress after her swearing in for her second mandate, in Buenos Aires December 10, 2011. REUTERS/Argentine Presidency/Handout

FIGHTING CAPITAL FLIGHT

She has already made several adjustments. Days after she was re-elected with 54 percent of the vote, Fernandez ordered energy and mining firms to cash in export revenues on the local foreign exchange market and sent in tax officials to approve dollar purchases on a case-by-case basis.

Both measures were designed to counter surging capital flight and bolster the central bank’s foreign currency reserves, which Fernandez has earmarked for debt repayments next year.

She also has started dismantling multibillion-dollar state subsidies on water, natural gas and utility bills, an unresolved legacy of a devastating 2001/02 economic crisis that is an increasing burden on public finances.

Deeper cuts in public spending — such as further subsidy reductions or caps on wage demands — likely will lead to struggles with the powerful trade union movement that provides the key support for Peronist politicians like Fernandez.

Fernandez indicated in her speech that she may take a harder line with the unions, whose demonstrations frequently leave the capital’s streets in gridlock. Recent strikes in Santa Cruz province cost the country $820 million, she said.

“With us there is the right to strike, but not blackmail or extort,” Fernandez said.

Slideshow (3 Images)

About 5,000 supporters, mostly young people from trade union groups, waving azure and white Argentine flags and blowing on trumpets, clustered in the square outside Congress and lined the streets leading to the pink government building where she met with visiting dignitaries.

A more market-friendly approach also is evident in her choice of Hernan Lorenzino as economy minister, which analysts said could point to intensified efforts to clear up lingering fallout from the 2002 debt default and return to global markets.

“What’s happened so far has been reassuring for those who thought something scary would happen in the second term,” said political analyst Federico Thomsen.

During her stormy first four-year term, Fernandez nationalized private pensions, fought with farmers over export taxes and ignored international arbitration awards to private firms hurt during the 2002 debt default.

PRICE WATCHDOG

Regional leaders such as Brazilian President Dilma Rousseff attended Saturday’s inauguration ceremony. Venezuelan President Hugo Chavez, who had been due to make his first official trip abroad since cancer treatment, cancelled at the last minute.

Also present was controversial price watchdog Guillermo Moreno, who is known for arm-twisting company executives into lowering prices and increasing exports. He is likely to have an expanded role in Fernandez’s administration, monitoring trade and currency flows.

Fernandez indicated in her speech that she would create a new foreign trade secretariat within the Economy Ministry but she did not say whether Moreno would lead it.

The outgoing vice president, Julio Cobos, who refused to step down despite an acrimonious falling out with Fernandez, also attended. Cobos is seen by Fernandez loyalists as a traitor and was replaced by her current economy minister, Amado Boudou.

Additional reporting by Hilary Burke and Magdalena Morales; Editing by Bill Trott

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