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http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/08/14/bloomberg1376-LPTQNZ1A74E901-0R7APE1J2NF83TMMJG6S6Q4OCG.DTL

Fernandez Trounces Rivals in Argentina's First Open Primary

(Updates to add bonds and peso in tenth paragraph, Fernandez's comment in 11th.)

Aug. 15 (Bloomberg) -- Argentine President Cristina Fernandez de Kirchner showed she has enough support to be re- elected in October after voters backed her stewardship of South America's second-biggest economy in an open primary.

Facing nine other candidates from different political parties, Fernandez had 50.1 percent in yesterday's primary with 96.8 percent of the polling stations counted, according to the Interior Ministry. Lawmaker Ricardo Alfonsin and former President Eduardo Duhalde were tied for second with 12.2 percent. Argentines were allowed to vote for any candidate and none of the contenders faced challengers from their own parties.

Fernandez, who succeeded her husband Nestor Kirchner in 2007, consolidated her support by presiding over economic growth that averaged 5.6 percent per year since 2008, giving monthly payments to poor families who keep their children in school and raising pensions.

"This is a recognition of all the work, the effort, everything that has been accomplished in the past eight years, but also for what we still need to do," Fernandez, 58, told supporters last night in Buenos Aires. "My only promise is to keep working for everything we still need."

Opposition leaders have less than 10 weeks to regroup ahead of the Oct. 23 presidential election. Under Argentine law, a candidate needs to win 45 percent of the votes in the presidential race, or 40 percent with a 10 percentage-point lead over the second-place finisher, to avoid a Nov. 20 runoff. Candidates who didn't get 1.5 percent support yesterday won't be eligible to run.

Faster Inflation

In backing Fernandez, voters shrugged off annual inflation that economists including former central bank President Alfonso Prat-Gay say is about 25 percent, more than double the 9.7 percent reported by the government in June. The economy grew 9.2 percent in 2010 and 9.9 percent in the first quarter from a year earlier.

"This is a result of the economy which, with the exception of 2009, has been going well for eight years," said Daniel Kerner, a political analyst at the Eurasia Group in a telephone interview from Buenos Aires. "This shows the high level of support Fernandez has and I think that it won't differ too much from what will happen in October."

Investors have taken another view on concerns that Fernandez, who nationalized the $24 billion pension fund industry and fined economists who questioned official inflation, will maintain her policies in a second term. Businesses and individuals pulled $9.8 billion out of the country in the first half of this year, compared with $11.4 billion in all of 2010, according to the central bank.

Credit Rating Cut

After Standard & Poor's cut the U.S. credit rating one level to AA+ on Aug. 5, the benchmark Merval stock index tumbled 10.7 percent, the most in the world, while the cost of insurance against a sovereign default over the next five years rose the most after Pakistan. At 9.86 percent, the yield on Argentine dollar debt is the highest among major emerging market economies after Venezuela, according to JPMorgan's EMBI+ index.

Warrants linked to economic growth rose 0.44 cent to 17.74 cents at 12:27 p.m. New York time. The peso was little changed at 4.1585 per dollar. The benchmark Merval stock index rose 0.7 percent to 2,988.08.

Rural Land

Fernandez today urged lawmakers to accelerate approval of a bill she sent congress limiting foreign purchases of rural land, legislation she proposed in April.

"This is a very important point to show society, the productive sector and the world the idea that we have about a vital and strategic resource," Fernandez told reporters today in Buenos Aires.

Yesterday's victory was a rare electoral win for Fernandez, who faced nationwide protests in 2008 after she announced a plan to raise taxes on agricultural exports. That four-month battle, which she lost in a Senate vote, helped the opposition end her control of congress in legislative elections in 2009. A year later, Kirchner, her husband and closest political adviser over two decades of campaigns, died of a heart attack at the age of 60.

Regional Defeats

In recent weeks, pro-government candidates struggled in regional races. Last month, opposition leader Mauricio Macri was re-elected mayor of Buenos Aires with a bigger margin than forecast and Fernandez ally Agustin Rossi finished third in the gubernatorial race in Santa Fe province.

Stung by those losses, Fernandez saw her approval rating fall to 52.5 percent in July from 60.5 percent in June, according to a July 22-26 poll of 2,000 people by Buenos Aires- based Management & Fit. The survey had a margin of error of 3.1 percentage points.

Fernandez has said she wants a second term to continue the work she and her late husband did to boost the economy following the country's default on a record $95 billion of debt in 2001.

Last year Fernandez restructured $12.9 billion of bonds remaining from the default, prompting Argentine dollar debt to surge 36 percent, the most among major emerging markets, according to JPMorgan Chase & Co. Nevertheless, the country remains blocked from international credit markets and the government has failed to reach a promised agreement over as much as $9 billion in defaulted debt with the Paris Club group of creditor nations.

Tapping Reserves

Fernandez's policy of using international reserves to pay debt and control fluctuations in the peso has caused reserves to fall to $50.3 billion from a record $52.6 billion in January, while central banks from Chile to Brazil keep accumulating. The peso has tumbled 4.4 percent this year, the most among 25 emerging market economies tracked by Bloomberg after South African rand and the Turkish lira.

A global economic slowdown prompted by a widening debt crisis in Europe and the S&P decision on the U.S. credit rating may erode Fernandez's record and pressure her to make changes in a second term, said Boris Segura, a Latin America strategist at Nomura Securities.

"The government will have to follow more coherent macro policies that would slow the overheating economy that is reflected in a high inflation and shrinking trade surplus," Segura said. "Once the government controls inflation, it will start correcting the loss of competitiveness of the economy. A soft landing is better than a hard landing."

--With assistance from Rodrigo Orihuela in Buenos Aires. Editors: Bill Faries, Patrick Harrington


Eric D. Schwerin
Rosemont Seneca Partners, LLC
1010 Wisconsin Ave., NW
Suite 705
Washington, DC 20007
(202) 333-1880
eschwerin@rosemontseneca.com
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