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Argentina “erosion” may spur change: Redrado

Aug 16, 2013

Argentina’s ruling party’s grip on power risks crumbling in the run up to 2015 presidential elections, analysts say, amid a sharp deterioration in the economy the country’s former central bank president blames on wrongheaded policies.

Argentina's economy has weakened sharply in recent years, Martin Redrado, a former governor of the country's central bank, told LatinFinance in an interview.

Mounting pressures on fiscal deficits, foreign exchange reserves, the exchange rate and trade balance could push the economy to a tipping point analysts say would have far-reaching political consequences.

"There has been a continuous erosion of the four pillars that have been the pattern of this decade," Redrado, who is now a consultant advising opposition candidates, said.

The central government and provinces ran fiscal deficits last year for the first time in 15 years, Redrado said.  This is despite the government's use since 2010 of the central bank as a "checkbook" for spending - a fact that prompted Redrado's departure as head of the bank.

The government has used international reserves - intended as a buffer against exchange rate volatility - to pay down debt. Argentine exports abroad now face stronger headwinds.

"Inflation has eaten up any competitive advantage that Argentina has had," Redrado said. "Without a new economic approach this process will continue to yield mediocre growth," he said.

Redrado expects the economy will grow by 2.3% this year, slowing to 2.1%  next year due to a lack of investment.  

Recent results in primaries before October congressional elections have emboldened the opposition - and prompted speculation on its prospects for 2015 presidential elections. 

"The president continues to ignore [the August 11] primary election defeat (26.3% of the national vote) and the new political reality it implies," Barclays wrote, noting little change in tone following the vote. It called the results an "electoral blow" and the overall level of votes for Kirchner's FPV party a good proxy for October.

"The election result decreases the possibility of the president being re-elected," Barclays added. "This should be seen as positive for investors, as it implies that a constitutional amendment [allowing Kirchner to stand for re-election] is not politically feasible and that political change should be expected in 2015."

Jeffries said the event likely marks the beginning of a positive shift in credit risk perception for Argentina.

"The presidential elections in Argentina are not until October 2015 but the current voting tendencies suggest declining political capital and limited policy flexibility," it wrote in a research note.LF

The full interview with martin Redrado will be published this month in LatinFinance's 25-Year issue http://www.latinfinance.com/quartercentury



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