(Reuters) - Argentine President Cristina 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.
Controversial measures such as curbs on beef and wheat exports and the sudden takeover of private pensions go down well with Fernandez’s leftist supporters but are generally unpopular with investors, big business and farmers.
Days after she was re-elected in October, Fernandez surprised the country with new currency controls in a bid to stop capital flight, suggesting that she will maintain the heavy-handed approach to problem-solving seen during her turbulent first term.
Initial cuts to state utility subsidies, however, indicate she may be looking to rein in state spending, and financial markets welcomed her choice of a debt specialist as economy minister.
Here are details of her policies and possible reforms:
Argentina is one of the world’s top grains suppliers and tensions over interventionist agricultural policies overshadowed Fernandez’s first term. Some farm leaders fear she could boost the state’s role in the multibillion grains trade, especially if an economic slowdown squeezes state finances.
Tensions with farmers have eased since they staged a wave of strikes in 2008 over a tax hike on soy exports. Fernandez scrapped the unpopular agency in charge of overseeing grains exports and some analysts think she could back a proposal to overhaul corn and wheat export quotas, a major gripe of the farmers.
A law to limit land sales to foreigners, which languished in Congress in 2011, will likely be quickly revived.
As new agriculture minister, she has picked little-known Fishing Undersecretary Norberto Yahuar, a career politician in his native Chubut province.
Fernandez’s fortunes in her second term could hinge on her success in keeping people in jobs and ensuring exports are competitive, as inflation drives up production costs and key trade partners’ currencies depreciate.
The 2012 budget bill sees the peso weakening against the dollar next year as double-digit inflation erodes the competitiveness of local manufactured goods.
Besides the managed-float exchange rate policy, Fernandez has thrown up import barriers that have riled key trade partners Brazil and China. Car makers agreed to match imports with exports in a bid to boost the domestic parts industry and a shrinking trade surplus. Most analysts expect such measures to be intensified if the economy stagnates.
Pay talks early next year will be closely watched for signs the government is committed to cooling wages that are rising at an annual rate of almost 30 percent. Officials have called for moderation and business leaders say limiting raises is crucial.
Ten years after staging the biggest sovereign debt default in history, Argentina has yet to return to global credit markets. Outgoing Economy Minister Amado Boudou has said the government can meet its financing needs without having to sell new debt at high rates. The 2012 budget bill earmarks the use of billions of dollars in Central Bank reserves to service public debt for a third year. Heavy Treasury borrowing from other state bodies, such as the Anses pensions agency, is also likely to continue.
However, economists say a possible slowdown next year might prompt the government to sell up to $3 billion in new debt as a way to maintain brisk spending.
In an apparent effort to shield the foreign reserves, Fernandez has already acted to stem capital flight. Days after the election, curbs were announced on the buying of dollars, insurers were told to repatriate investments and resources firms were ordered to cash in export proceeds locally.
The government’s financing gap would increase if it starts repaying the nearly $9 billion the country owes the Paris Club of wealthy creditor nations, one of the last unresolved remnants of the $100 billion default in 2002. New Economy Minister Hernan Lorenzino has played a key role in stalled talks on a repayment plan, but a worsening financing outlook might discourage a deal.
Argentina’s central bank has no inflation-targeting regime and the government uses company price accords and export curbs to try to ensure basic goods are affordable.
Financial markets are watching for efforts to restore credibility to official inflation data. The numbers have come in way below private forecasts since early 2007, when Fernandez’s late husband and predecessor as president, Nestor Kirchner, fired long-serving staff at the consumer price unit.
Statistics officials are working with the International Monetary Fund to design a new consumer price index that should be up and running by early 2014. It is unclear whether the roughly quarter of Argentine bonds that are inflation-indexed would be based on the new index and whether it will be any closer to private estimates.
Fernandez is not expected to become a fierce inflation-fighter but she could cool spending a bit and encourage unions to ease wage demands to contain pressures.
Almost a decade of rapid economic expansion and slack investment in exploration are straining Argentina’s energy resources. That is forcing the government to import more fuel, eroding the trade surplus.
Since the election, the government has cut more than $1 billion in utility subsidies from homes and businesses and has said it would review billions more, a move welcomed by Wall Street but likely to prove unpopular at home.
Some new energy projects are coming on line. This combined with the discovery of a huge shale gas deposit in Patagonia has raised hopes that Argentina could regain energy independence.