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Despues Del Triunfo De Kirchner (The Economist)

Following a successful electoral gamble, some hard decisions for the president

THE contest between Argentina's current first lady and her predecessor to represent the province of Buenos Aires in the national Senate was billed as “the mother of all the battles” in a mid-term election on October 23rd. When the votes were counted in this Amazonian contest, Cristina Fernández de Kirchner had won a crushing victory, by 46% to 20%, over Hilda González de Duhalde. Across the country, the candidates of Argentina's president, Néstor Kirchner, did almost as well, winning some 40% of the vote. What Argentines will now want to know is what Mr Kirchner proposes to do with his victory and whether it is the prelude to winning a second term in 2007.

Through the vehicle of his wife, the president can claim to have won the two things he wanted from the ballot. The first is a personal mandate from an election in which he was not a candidate. He had been denied such a mandate in the 2003 presidential contest when Carlos Menem, another ex-president, withdrew from a run-off ballot. The magnitude of his victory last weekend was not far short of that achieved by Mr Menem in his first mid-term election, in 1991. His candidates won 15 of a possible 16 senate seats, earning Mr Kirchner a comfortable majority in the upper house. In the 257-seat lower house, they will form by far the largest block, although he will have to negotiate with others, both inside and outside Peronism, to secure a legislative majority.

That task will be made easier by Mr Kirchner's second reason for satisfaction: he can now claim the undisputed leadership of the Peronist movement, no longer having to share this with Eduardo Duhalde, his predecessor. Buenos Aires province, home to 40% of Argentines, has long been Mr Duhalde's turf. Choosing the province as the venue for Ms Fernández's candidacy was a gamble, but one which paid off spectacularly. Mr Duhalde's congressional block has shrunk from 33 deputies to 25, and will probably decline further at the next election, for president and part of Congress, in 2007. “Kirchner hasn't killed the Duhaldes yet, but now it's a question of when, not if,” says Nicolás Ducoté of CIPPEC, a Buenos Aires think-tank.

But the election also legitimated new opponents. The strongest is Mauricio Macri, a businessman who runs Argentina's most popular football club, Boca Juniors. Mr Macri won the race for the lower house in the city of Buenos Aires, with a margin of a dozen percentage points over Elisa Carrió, a leftish lawyer, and Rafael Bielsa, Mr Kirchner's foreign minister. Mr Macri will now dispute the leadership of the centre-right with Jorge Sobisch, the governor of Neuquén province. Ms Carrió was hurt by a scandal—invented by the government, she claimed—over foreign bank accounts, but her party picked up three seats in the lower house.

Mr Kirchner, a populist nationalist, will doubtless prefer it if his main challenge in 2007 comes from the right than the left. He took office as the economy was recovering strongly from its collapse in 2001-02. He now faces a cloudier economic picture—and some unpleasant decisions that he has hitherto postponed. The biggest worry is inflation, which has crept into double digits. During the campaign, the president blamed price increases variously on Shell petrol stations and supermarkets. Keeping inflation in check probably requires either higher interest rates or allowing the peso to appreciate. Mr Kirchner has supported neither. The government will also have to deal with demands for wage increases from public employees.

A second thorny issue concerns prices charged by privatised utilities, frozen since 2002. Officials say they do not want to increase charges for residential users until 2007. Maintaining that stance may mean forgoing an agreement that would roll over some hefty debt payments to the IMF. The big question is whether, given the president's penchant for economic meddling, sufficient private investment will be forthcoming to maintain high growth.

It would be a mistake to read too much into Mr Macri's victory in Argentina's wealthiest enclave. But if the strongest challenge to Mr Kirchner does come from the right, that will give the president an incentive to tackle these issues. Starting with the selection of a new foreign minister to replace Mr Bielsa, Mr Kirchner's chances of a second term will depend on the decisions he takes in the next few months.

En Las Eleciones, Dos Que Pelean Por El Manto De Evita (The NY Times)

October 23, 2005
In Argentine Election, 2 Battle to Wear the Mantle of Evita
By LARRY ROHTER

BUENOS AIRES, Oct. 21 - From Evita Perón onward, the Peronist movement has excelled at using women to try to mobilize its faithful. Gen. Juan Domingo Perón deployed his wife, during her life and after her early death, as his link to the masses, and more recently Carlos Saúl Menem even married a former Miss Universe, supposedly with an eye to reviving his flagging political fortunes.

But Argentina's dominant party may have outdone itself this time. Acting as proxies in their husbands' struggle for control of the party apparatus, the current first lady and her predecessor are facing each other in a bitter fight for a Senate seat.

In the hard-fought campaign leading up to the midterm vote on Sunday, a confrontation the press here is calling "the mother of all battles," both women have offered themselves as Evita's heirs. But Cristina Fernández de Kirchner, the wife of President Néstor Kirchner, and Hilda Beatriz González de Duhalde, her main opponent, differ markedly in background and political style and seem to agree on little, including the nature of Evita's legacy.

Until she died of cancer in 1952 at the age of 33 and was transformed into a martyr, Eva Duarte de Perón, known as Evita, was regarded as "the mother of the poor." She served not only as her husband's adviser and confidante, but also as the most visible agent of his government's largesse. She was the benefactress who pushed for, and delivered, low-cost housing, subsidized vacations and reduced working hours and capped food prices to help "los descamisados," the "shirtless" working masses.

On the trail in this campaign, Mrs. Duhalde, who was in charge of government social programs during the 17-month presidency of her husband, Eduardo Duhalde, has reminded voters of her own humble origins, her years as a homemaker and the fact that she, not her opponent, won the right to appear on the ballot as the Peronist candidate. At a rally on Monday in Lanús, a working-class Buenos Aires suburb, Mrs. Duhalde, known as Chiche, came close to calling Mr. Kirchner an apostate and his wife a carpetbagger.

"What is at stake is not Chiche, but the party founded by the genius of Perón and the soul of Evita," Mrs. Duhalde, 59, told the crowd. She harkened back to her childhood, when all Argentines benefited from a Peronist welfare state; that state, she charged, has been replaced by "growing indigence, a pinched retirement, and wealth that is more and more concentrated."

In contrast, Mrs. Kirchner presents herself as an Argentine version of Senator Hillary Rodham Clinton, whom she openly admires, and has sought to reach beyond the Peronist core voter. A 53-year-old lawyer whom polls show comfortably in the lead, Mrs. Kirchner already sits in the Senate, representing her husband's small home province, Santa Cruz, in Patagonia. But she would immensely enhance her own power, and her husband's, by winning the chance to represent Buenos Aires Province, home to nearly 40 percent of Argentina's 38 million people.

With a third of the seats in the Senate and half those in the lower house at stake on Sunday, Mr. Kirchner is hoping not only to put his wife into that seat and bolster his image, but also, at last, to get a loyal majority in Congress. There, Mr. Duhalde still controls the Buenos Aires delegation, the largest in Congress, and has blocked initiatives that would enhance his rival's popularity or political maneuverability.

Though neither Mr. Kirchner nor his wife has talked about their plans, the press is convinced that they are trying to build a dynasty to exceed the Peróns'. According to such speculation, Mr. Kirchner is certain to run for a second term in 2007 and then make way for his wife, who if elected twice, would leave office only at the end of the next decade.

"Our project is a wager on a new fatherland, a new history," Mrs. Kirchner, the president at her side, said Thursday night as her supporters waved posters of Evita Perón at a rally ending her campaign. "This is not just another election," she added, but an attempt to "close the page on the past and look to the future."

The Duhaldes, she said, are part of that tarnished past. Without mentioning them by name, Mrs. Kirchner criticized those who "devastated the province, and now they say they are going to do what for years they didn't do," while her husband, she said, "has lowered unemployment to its lowest rate in 15 years" through a program of "work, production, exports and consumption."

Putting his wife on the front line is just one step Mr. Kirchner has taken in his quest to push aside Mr. Duhalde.

From a cathedral altar, he recently asked for voter help and support, earning a bishop's criticism, and in a speech this week commemorating the 60th anniversary of the popular uprising that brought General Perón to power, he colorfully evoked his Patagonian roots - which have led cartoonists to depict him as the animal most closely associated with the region - to make a similar plea.

"There is a penguin who is all by himself and has come to ask for your help to continue changing the fatherland," he said. "Remember the penguin when it comes time to cast your vote."

The Duhalde-Kirchner Senate battle continues a recent tendency in which the Peronist movement seeks to resolve its internal disputes in public, at the polls, instead of through backroom negotiations, as was once its tradition. When Mr. Kirchner ran for president in 2003, for instance, he was one of three Peronist candidates, including Mr. Menem and another former president. He was sworn in having won only 22 percent of the popular vote.

In office, he has proved to be unpredictable but popular, casting himself as an iconoclast and unyielding force for change, not afraid to defy the armed forces, the International Monetary Fund or multinational corporations. He has an approval rating of more than 60 percent, down by 10 points from early in the year, but has chosen to cast the midterm election as a plebiscite on his performance.

"Popularity is one thing, but power is another," said Graciela Romer, a political consultant and analyst here. "And what this government needs is power, not popularity."

Mr. Kirchner's critics on the right charge that he has, like Peronist leaders in the past, subordinated sound economic policies to his personal political interests. Government spending on projects like roads and public housing has jumped, while requests from public utilities to compensate for losses they say they suffered in the huge currency devaluation of 2002 have been refused.

In addition, wage increases for government employees, retirees and some private sector workers have added to an inflationary spurt. The inflation target for the entire year has already been passed, and most projections for 2005 now put inflation above 10 percent, far from the four-digit annual increases Argentina has experienced in the past, but still worrisome in a country where real wages and investment have fallen.

As is often the case here, there have also been accusations of vote buying. This month, a Socialist candidate filed a complaint charging that the government has been giving away washing machines and other appliances to voters in Buenos Aires Province in return for pledges of support for the Kirchners' ticket.

As minister of social welfare, Mr. Kirchner's sister Alicia, who is running for the Senate seat in the family's home province in Patagonia that Mrs. Kirchner now occupies, is responsible for the distribution of goods and services to the poor.

She said she was merely continuing a program long in place, and Mr. Kirchner's chief of staff, Alberto Fernández, dismissed the vote-buying accusation as a campaign ploy of "a sector of the opposition dedicated to smear tactics."

Argentina: Tierra Del Peso Que Se Encoje Increíblemente (The Wall Street Journal)

THE AMERICAS

Argentina: Land of the
Incredible Shrinking Peso
By MARY ANASTASIA O'GRADY
October 21, 2005; Page A15

Plus ça change, plus c'est la même chose, French journalist Jean-Baptiste Alphonse Karr observed in 1849. And when Argentina's consumer prices jumped 1.2% last month -- the largest monthly increase in two years -- those words resonated. A lot of change has occurred in Argentina since the hyperinflation of the 1980s, but as the developing economic story unfolds, much remains remarkably the same.

Inflation for 2005 is on track to top 10% and some Argentine forecasters are bracing for an annualized rate as high as 12%. Peronist President Nestor Kirchner, gearing up for this Sunday's mid-term elections, has blamed greedy supermarkets and threatens action if they don't stop taking "advantage of the fact that there is more demand to increase their profitability."

No wonder analysts are eyeing the pick-up in inflation, and the central bank's passive attitude toward it, like Floridians watching Wilma swirling about in the Caribbean. We already know what happens when this baby makes landfall. Batten down the hatches.

After a decade of monetary calm under the "convertibility law," which required dollar reserves to back up newly minted pesos and pegged the rate at one-to-one, Argentina pulled the plug on price stability in January 2002 and reverted to what it called a "float." The decision to "float," following a massive debt default, was cheered in ivory towers and by no small number of the world's supposedly sophisticated financial writers.

But the monetary strait-jacket was removed from Argentina's legendary machine politics, and any first-year political science student could have predicted the outcome: The Peronists have indulged in money mischief (to borrow a 1992 Milton Friedman title) and the inflation rate has gone up. The fact that the country's top central banker today is known more for his transparent political ambitions than his economic acumen is no confidence builder.

In 2001 and 2002, like revelers on a drunken tear the Argentine government seized bank accounts and dollar holdings, stiff-armed creditors, devalued the peso and tore up contracts. Argentine wealth was wiped out and the economy contracted 10.9% in 2002. In the two years after this debacle, the economy bounced off the bottom, turning in 8.8% growth in 2003 and 9% in 2004.

The trouble is that most of the take from this great heist has been spent now and the high is wearing off. To keep the party going the government is maintaining an artificially weak peso to ensure "export competitiveness" and, in the government's mind, continued prosperity. This, of course, is what is fueling the inflation.

One school of thought holds that the central bank was instructed by the government to shower the country with pesos to help the Kirchner claque win seats on Sunday. With GDP growth forecast close to 8% this year, the prospects for Mr. Kirchner's wing of the Peronist party are good. Had the bank pulled the punch bowl earlier this year, his supporters in Congress could well have faced more difficult contests.

Yet there is little in the government's rhetoric to support the theory that the bank -- which is clearly not independent -- will tighten the money spigots after Sunday. Indeed, the government's budget for next year forecasts double-digit inflation of 10%, sending a worrying signal of tolerance. Moreover, the 2005 inflation number has been held down by the government's refusal to adjust wages and by price controls in some sectors. During the crisis, workers were happy to keep their jobs. But labor seems unlikely to remain placid while inflation erodes purchasing power. Strikes are hitting across the board.

Economists I talked to in Argentina are worried that the bank will only take action when annualized inflation gets near 15%. But as experience teaches, by then momentum could make putting the inflation genie back in the bottle very difficult. As inflation expectations take hold, people flee from the currency, particularly in places like Argentina where politicians have destroyed the currency before.

The country's return to 1998 GDP levels this year occurred in a climate of hostility toward the market and amid a growing role for the public sector. Going forward, the divergence between investors concerns about property rights and a government ideologically opposed to respecting those rights will become a source of trouble.

This anti-market bias has damaged investment, which is now running (in constant dollars) at only 20% of GDP. Economists estimate that to achieve a long-term annual GDP growth rate of 3.5%-4%, a minimum investment rate of 23% of GDP is needed. To reach the 5% GDP-growth-rate that could meaningfully impact poverty and unemployment, the investment rate should reach 25% of GDP.

The strong growth of the past three years has occurred in an environment of underutilization of productive capacity, mainly in the tradable sector where investment is not so crucial and where the devalued peso helps rack up large exports. But infrastructure improvement is inadequate, which discourages ventures that need communications, transportation and other services. A high degree of uncertainty in the energy sector, again driven by the state's punishing attitude toward ownership and profits, has been most harmful.

Other problems are on the horizon. This week, Argentina magnanimously suggested that it might forgive the International Monetary Fund its sins and begin loan negotiations again. Could that have anything to do with $7 billion in total payments due the fund between now and the end of 2007? Meanwhile, the heavily taxed export sector is being squeezed as costs rise even while the government seeks a nominally weak exchange rate.

No one expects Argentina to return to the hyperinflationary terror of the early 1980s, when the central bank humiliated itself to the point of issuing one-million peso notes. But that is little comfort to Argentines who, in a nation of much promise, have experienced lots of change but little progress.


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