Argentina “erosion” may spur change: Redrado
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
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