Country Report Argentina March 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 outcome of the mid-term October 2009 congressional poll is expected to leave Ms Fernandez 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 quickly declining business and consumer confidence, the government's fiscal stimulus measures will have a limited effect and we expect the economy to contract by 2.8% 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 October elections, the outlook for the public finances will darken in 2010, raising the risk of a sovereign default.
• 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 0.8% 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 7.1%, easing slightly in 2010.
• The peso will weaken significantly in 2009 owing to weaker foreign exchange inflows, before the pace of depreciation slows in 2010. The current-account will swing into deficit in 2009-10, after large annual surpluses since 2002.

Monthly review

• In February Mauricio Macri, the mayor of Buenos Aires city and leader of the centre-right Pro, and two dissident peronist congressmen, Felipe Sola and Francisco de Narvaez, announced an alliance to oppose the Kirchners.
• The Kirchners have lost key allies ahead of the October elections, including a senator, Carlos Reutemann, over the conflict with farmers. Mr Kirchner may stand as a candidate to try to bolster the presidential couple's power.
• The deceleration in tax revenue observed in the fourth quarter of 2008 continued in January, narrowing the primary surplus to Ps2bn in that month.
• The government is threatening to nationalise the grains market in order to try to force farmers to ship grains held in storage to boost fiscal revenue.
• The government swapped Ps19bn of bonds maturing in 2009-11 yielding debt-service savings of US$2bn in 2009, but debt-sustainability concerns persist.
• GDP grew by 4.8% in the fourth quarter, according to official data. But private estimates point to a contraction, raising concerns that the government is meddling with the national accounts data.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60;1
NAICS Code: 52;11