Country Report Argentina April 2009

Summary

The president, Cristina Fernandez de Kirchner, faces mounting challenges as tensions rise with the farming community, alliances with state governors weaken and policy improvisation exacerbates the economic deterioration.
The outcome of the June 2009 congressional poll is expected to leave MsFernandez a lame duck until the 2011 general elections; as tensions mount, there is a significant risk that she will be unable to see out her term.
Given rapidly declining business and consumer confidence, the government's fiscal stimulus measures will have a limited effect, and we expect the economy to contract by 3% in 2009, before only a mild recovery in 2010.
Although the government will be able to remain current on most of its obligations in the approach to the June election, the outlook for the public finances will darken, raising the risk of a new sovereign default.
Weaker agricultural export earnings and the recession will hit the public finances, narrowing the primary surplus to 1.6% of GDP in 2009 and leading to an overall budget deficit of 0.8% in 2009, with a similar result in 2010.
Unofficially measured inflation will ease to 10-15% in 2009, as private demand falls. The official rate will end 2009 at 6.8%, with a similar rate in2010.
The peso will continue to depreciate in 2009 owing to weaker foreign-exchange inflows, before the pace of depreciation slows in 2010. The current-account position will weaken in 2009-10.

In a surprise move characteristic of the Kirchners' political style, on March 13th the president, MsFernandez, asked Congress to move the legislative election forward from October 25th to June 28th.
The move improves the Kirchners' chances of holding on to their slim majority in Congress, although our baseline forecast is that they will not, forcing them to bargain with some of their political opponents.
The public finances have continued to deteriorate, as the sharp economic downturn and the electoral calendar contributed to a halving of the monthly primary surplus in February to Ps1.6bn (US$400m).
According to official data, output growth decelerate to 2.3% year on year in January. However, local private surveys point to a 3% contraction.
The impact of the global crisis on Argentina's balance of payments is clear from fourth-quarter 2008 data, with the current-account surplus narrowing by 39.8% year on year to US$1.8bn.

Source: Country Report

This report covers the following industry codes:
SIC Code: 20;60;47
NAICS Code: 311;52;48