Country Report Argentina February 2009

Outlook for 2009-10

• 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 president faces opposition, including from within the ruling Partido Justicialista (PJ), and will suffer a defeat in the mid-term October 2009 congressional poll, leaving her a lame duck until the 2011 general elections.
• Given quickly declining business and consumer confidence, the government's 2% of GDP fiscal stimulus package will have a limited effect and we expect the economy to contract by 2.7% in 2009 before only a mild recovery in 2010.
• Although the November pension grab provides the government with fiscal and financing resources, the outlook for the public finances will darken in 2010, heightening concerns over debt sustainability.
• Weaker agricultural export earnings and the recession will hit the public finances, narrowing the primary surplus to 1.5% of GDP in 2009, leading to an overall budget deficit of 0.7% in 2009 with a further deterioration in 2010.
• Unofficially measured inflation will ease to 10-15% in 2009 as private demand falls. The official rate will end 2009 at 8%, easing in 2010.
• The peso will weaken significantly in 2009 before the pace of depreciation slows in 2010. We now expect a lower current-account deficit in 2009 of 0.8% of GDP (previously we expected a surplus) owing to lower export earnings.

Monthly review

• Tensions between the government and farmers re-emerged over the government's response to drought and lower export prices, with emergency measures announced on January 26th 2009 disappointing producers.
• Pressure from farmers has caused some former Kirchner supporters to break ranks and support their cause, weakening the presidential couple.
• With a weakening fiscal position, the government lifted public transport system tariffs (for buses, trains and subways), to save Ps800m in subsidies.
• After a deceleration in October and November, preliminary official data point to an unlikely 2.2% month-on-month recovery in December, raising concerns that the government may be manipulating output data.
• Agriculture is suffering from a triple whammy of sharp falls in international prices, the worst drought in 70 years that began in second-quarter 2008 (the planting season for wheat) and persistent government intervention.

Source: Country Report

This report covers the following industry codes:
SIC Code: 49;47;80;1
NAICS Code: 22;48;62;11