(Updates peso and stock market movements in sixth paragraph.)
Oct. 24 (Bloomberg) -- Argentine President Cristina Fernandez de Kirchner vowed to maintain policies that reduced poverty while being blamed by investors for fueling inflation of more than 20 percent after winning a landslide re-election.
“You can count on me to extend a political project that improved the lives of 40 million Argentines,” Fernandez, 58, told supporters celebrating her victory for a second four-year term in downtown Buenos Aires yesterday.
With 98 percent of precincts counted, Fernandez won 54 percent of votes, the most since Juan Domingo Peron after he returned from a two-decade-long exile in 1973, according to official results. Santa Fe province Governor Hermes Binner came second with 17 percent.
In backing the Peronist party leader, voters shrugged off annual inflation that economists say is more than double the government-reported 9.9 percent. While Fernandez hasn’t said how she’ll halt capital flight, stem a narrowing trade surplus and keep Argentina growing amid a global slowdown, she’s likely to interpret the win as a sign that few policy changes are needed, said former deputy Economy Minister Orlando Ferreres.
“Nobody knows what they are planning to do, or who is doing the thinking,” said Ferreres, who runs an economic research company in Buenos Aires. “But changes are going to come only when the government has no other choice.”
The benchmark Merval stock index climbed 2.3 percent to 2,861.82. The yield on Argentina’s 2017 dollar bonds fell 17 basis points to 10.98 percent. The peso was little changed at 4.2359 per dollar.
Fernandez will probably be able to build alliances to create a “working majority” in both houses of Congress, said Daniel Kerner, an Argentina analyst at the Eurasia Group. Fernandez had lost control of the legislature in 2009, after her proposal to raise farm export taxes erupted into four months of nationwide protests.
The president “begins her second mandate in a very strong political position, with high popularity and ample control of the country’s state institutions,” Kerner wrote in an e-mailed report.
Argentines rallied behind Fernandez as record-low unemployment, wage increases of more than 30 percent a year and a surge in social spending fueled a consumption boom. Since taking office in 2007, Fernandez has overseen economic growth that averaged 5.6 percent a year. The poverty rate has tumbled by more than half to 20 percent from its peak following the country’s 2001 default on $95 billion in bonds, according to estimates by Buenos Aires-based Consultora Equis.
Argentina is likely to “visibly accelerate” the depreciation of the peso to remain competitive next year after Fernandez’s victory, Goldman Sachs Group Inc. analyst Alberto Ramos said today in a note to investors. Consumer prices by the end of the year are expected to have increased by more than 50 percent from year-end 2009, according to the report.
Annual inflation will likely slow to between 15 percent and 20 percent, from the current 20 percent to 25 percent, on concern that economic stability may be threatened by accelerating consumer prices, Credit Suisse analyst Carola Sandy wrote today in a note to investors.
Even as Argentines snap up cars and flat-screen televisions, investors remain wary of South America’s second- biggest economy. Traders see a more than 40 percent chance that Fernandez will stop payment on the nation’s debt in her next four-year term. Argentina’s debt is the riskiest among major emerging market economies after Venezuela, according to JPMorgan Chase & Co. indexes.
Argentines pulled $9.8 billion out of the country in the first half of this year, compared with $11.4 billion in all of 2010, as the debt crisis in Europe worsened and prices for soybean exports to China fell. The capital flight led the central bank to sell $2.7 billion of reserves in August and September to stem a depreciation in the peso, whose 2 percent decline during the period lagged behind currency losses in Brazil, Chile and Mexico.
“Much of the favorable conditions that boosted President Fernandez de Kirchner will soon disappear, squeezing the economy like an oversized plump lemon,” Walter Molano, head of research at BCP Securities, wrote in a report today.
Fernandez dedicated her victory to her late husband and predecessor, Nestor Kirchner, who she said would be remembered as one of Argentina’s greatest leaders. Kirchner died a year ago this month of a heart attack, leaving his longtime political partner to carry out alone populist policies that ushered them into power following the 2001 financial collapse.
‘Nestor Didn’t Die’
“Without him and the things he dared to do, this moment would have been impossible,” Fernandez, her voice choking with emotion, said to supporters chanting “Nestor didn’t die.”
Fernandez’s health came into question this year as well after she canceled trips abroad and her daily activities three times following bouts of low blood pressure.
In her 35-minute victory speech, Fernandez made scant mention of the global economic crisis, saying that amid a “turbulent, complex world,” Argentina needs more schools, hospitals and roadways to keep growing she said. Outside the pink presidential palace, thousands of supporters, some of them waving flags emblazoned with the image of former First Lady Eva Peron, had gathered to celebrate Fernandez’s win.
The economy will expand 4.3 percent next year, according to the median estimate of nine economists surveyed by Bloomberg, after growth of more than 8 percent this year.
The budget and trade surpluses that have underpinned Argentina’s growth since Kirchner took office in 2003 are narrowing as public spending accelerates. A slowdown in neighboring Brazil, Argentina’s biggest trade partner, and lower world commodity prices are also hurting exports.
The trade surplus narrowed to $8.1 billion through September from $10.3 billion a year earlier, while the government forecasts it will produce a budget deficit this year equal to 0.6 percent of gross domestic product.
Fernandez will have to reconfigure her economic team as Economy Minister Amado Boudou prepares to take over as vice president when the new government is sworn in Dec. 10. The long- haired, 48-year-old running mate energized Fernandez’s campaign by playing his guitar to supporters during rallies.
Against the worsening economic outlook, Argentina hasn’t regained access to global credit markets since its default. Fernandez restructured almost $13 billion in bonds outstanding from the default last year, yet creditors holding about $4.5 billion are pursuing payment in court.
Without being able to sell bonds abroad, Fernandez has tapped central bank reserves to make payments on debt and plans to use $5.7 billion in savings next year for the same purpose. Reserves have tumbled to $48 billion this year from a record $52.6 billion in January, while central banks in Brazil and Mexico continue saving.
The country also hasn’t allowed the International Monetary Fund to review its finances, as it does for every other member country, since 2006, and has failed to reach an accord with the Paris Club group of creditor nations to settle claims on $9 billion of defaulted debt.
“The government has to find a way to keep the fiscal accounts in balance and to regain access to the international financial markets,” said Juan Pablo Fuentes, a Latin America economist at Moody’s Analytics Inc in West Chester, Pennsylvania. “Those two things go together and are going to be the biggest challenges in the near future, especially because we are now in a more uncertain global environment.”
--With assistance from Camila Russo, Laura Price and Dale Crofts in Buenos Aires. Editors: Richard Jarvie, Bill Faries
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