(Updates to add Fernandez’s comments from fourth paragraph.)
Dec. 10 (Bloomberg) -- Argentine President Cristina Fernandez de Kirchner starts her second term with the challenge of extending nine years of economic growth while tackling one of the world’s highest inflation rates.
Fernandez took the oath of office at the Congressional building in Buenos Aires today after winning re-election in October with 54 percent of the vote, the most since Juan Domingo Peron’s return from exile in 1973. Former Economy Minister Amado Boudou was sworn-in as vice president.
The 58-year-old Fernandez, wearing the blue and white presidential sash, vowed to focus on improving the competitiveness of South America’s second-biggest economy and to boost regional trade ties as the world faces a slowdown led by a debt crisis in Europe. She said she would shift the foreign trade secretariat from the foreign ministry to the economy ministry to ensure policy coordination.
“We know that regional integration is one of the best defenses in a difficult world,” Fernandez said as the presidents of Brazil, Uruguay, Bolivia and Chile looked on. “We need to protect what we have achieved in recent years.”
Since Fernandez took office in December 2007, annual economic growth has averaged 5.6 percent and unemployment fell to 7.2 percent. Aided by surging soybean exports and growth in neighboring Brazil, Fernandez used record government revenue to boost spending on public works, raise pensions and provide subsidies to poor families who kept their children in school. That helped fuel a consumer boom and annual inflation economists estimate is 25 percent.
“The main problem that should be resolved is inflation,” said Nestor Walenten, head of the country’s real estate chamber. “Once we manage to control inflation, the country will be able to keep on the growth path and workers will have more purchasing power.”
Fernandez praised the use of central bank reserves to pay down debt and said her government would set economic targets based on employment, not inflation. She urged Congress to pass a law restricting the purchase of farm land by foreigners and compared the debt crisis in Europe to the experience of Argentina in 2001, when the country defaulted on $95 billion of bonds and unemployment soared to more than 20 percent.
Argentina’s debt before the default “was a weight that prevented us from growing, a weight that generated misery and tragedy,” she said. “Today other countries face the same problem and we see what is happening.”
Absent from today’s ceremony was Hugo Chavez of Venezuela, who has been undergone treatment for cancer this year. Chavez canceled his plans to attend the ceremony yesterday, saying he needed to deal with heavy rains in his country. The U.S. sent Labor Secretary Hilda Solis.
A weakening peso and living costs rising at the fastest pace among major economies after Venezuela led Argentines to pull $18 billion out of the economy in the first nine months of 2011, double the pace of a year earlier, according to the central bank.
Fernandez has sought to stem the losses since her election by ordering some companies to repatriate foreign investment and export revenue and tightening controls over the foreign exchange market. She has also prodded companies to increase their investments in the country and to manufacture more of their goods locally.
In a move that helped rally the country’s bonds, Fernandez on Dec. 6 named Finance Secretary Hernan Lorenzino to take charge at the Economy Ministry, replacing Boudou. Lorenzino, 39, helped manage last year’s debt restructuring and accompanied Fernandez to a summit of G-20 leaders in France last month.
Lorenzino’s experience may help pave the way for Argentina’s return to global credit markets for the first time since defaulting on $95 billion of bonds in 2001, said Sebastian Vargas, an analyst at Barclays Plc in New York.
Without access to global markets, the government has turned to the national pensions agency for financing, and tapped central bank reserves, which fell to $46.2 billion on Dec. 6 from $56.2 billion in January, to help pay its foreign debt.
Next year, the global economic crisis and a slowdown in Brazil, Argentina’s main trade partner, will cut growth to 4.3 percent from 7.5 percent this year, according to the median estimate of nine economists surveyed by Bloomberg.
Some sectors are already showing signs of stalling. Contracting vehicle demand in Brazil, the main destination for Argentine car shipments, led auto exports to slip 18 percent in November from a year ago. Industrial production in October rose 4.1 percent from a year earlier, the slowest pace in two years.
Fernandez’s efforts to reduce subsidies, limit salary increases and restrict access to the foreign exchange market risk alienating a broader range of voters, said Mariel Fornoni, director of Buenos Aires-based pollster Management & Fit. Yet given the size of her October election victory, Fernandez can press ahead with difficult measures to fix the economy, Fornoni said.
“She has the political capital to do that now,” Fornoni said.
--Editor: Bill Faries, Mike Millard.
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