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FROM THE ECONOMIST INTELLIGENCE UNIT

Former President Néstor Kirchner, considered the strongman behind current President Cristina Fernández de Kirchner, died on the morning of October 27th of a sudden heart attack. This will shake up the country’s political scene and create new uncertainties ahead of next year’s presidential elections. Mr Kirchner was the leader of his party and was expected to run for president again in October 2011. It is not yet clear how the political void left by his death will be filled, but the government’s economic policies are not likely to shift.

Mr Kirchner (60) served as president from 2003 to 2007 and was succeeded by his wife, Ms Fernández, in a strategy that was designed by the “presidential couple” to allow them to alternate in power. He headed the governing Partido Justicialista (PV), and heavily influenced the policies of the Fernández administration. He was also the head of a regional grouping, the Union of South American Nations (Unasur).

Although there had been growing concerns about Mr Kirchner’s death in recent months (he had had two cardiac procedures earlier this year), the shock of his death will reverberate strongly in the days and weeks ahead. He was undoubtedly the most powerful political figure in Argentina during the last seven years—having taken office after the massive financial and economic crisis of 2001-02, and overseen two debt restructurings and, together with his wife, an impressive economic rebound.

However, the Kirchners have faced major criticism over their heavy-handed economic policies and confrontational style of government, and Ms Fernández’s approval ratings plummeted at one point into the 20s (they have since recovered into the 30s, thanks to strong economic growth). Among the policies that have been attacked have been increased state control of the economy, interventions in the financial and agricultural markets, and maintenance of price freezes in various sectors. The government has also been criticised for taking over private pension funds and using Central Bank reserves for debt repayment. Most recently, the Fernández government has been engaged in a high-profile conflict with several media groups.

Among the population, there has been growing dissatisfaction with rising crime and corruption, as well as the re-emergence of food price inflation, which is eroding real incomes and hitting the poor hard. Inflation in Argentina is among the highest in the world, and has been stoked mostly by the government’s loose monetary and fiscal policies.

At the same time, however, Argentina has been posting brisk economic growth rates, thanks to government policies, high commodity prices and strong demand in major exports markets, such as China and Brazil.

Elections wide open

Mr Kirchner’s death will produce an initial outpouring of support for Ms Fernández, but this might not translate into a permanent increase in her government’s popularity. Though Mr Kirchner was expected to make a run for the presidency next year—and the government has been pump-priming economic growth to improve his chances—he was probably not headed for any easy victory. His chances would have been undermined by rising discontent with inflation, crime, corruption and clientelism, and a desire for change after more than eight years of Kirchner rule. Other figures within the PJ now will scramble for leadership of the party to fill the void. A battle for the presidential candidacy will also ensue, but it is too early to predict its outcome.

Various opposition figures already have emerged as possible front-runners in the upcoming presidential contest. Among these is Mauricio Macri, mayor of the city of Buenos Aires and leader of the Propuesta Republicana (Pro) party; the current vice-president, Julio Cobos (who broke with the government in 2008); and Congressman Ricardo Alfonsín (son of a former president, Raúl Alfonsín). However, the opposition’s chances hinge on whether they can maintain an electoral alliance behind one candidate, which is not yet clear.

With Mr Kirchner gone, the electoral outlook has been shaken up completely, and will now depend on the leadership battle within the PV and the emergence of an alternate candidate. That could take weeks if not months to become clear.

On the economic policy front, however, there is little reason to believe things will change until after the October 2011 elections are passed. Meanwhile, official inflation statistics will remain discredited, reflecting political meddling. The risk of nationalisations persists following the takeover of private pension funds in 2008, and the independence of the Central Bank is being steadily eroded. Combined with the new political uncertainties, along with concerns over the maintenance of strong fiscal and monetary stimulus measures—which are boosting inflationary pressures and raising further questions about the health of the public finances—this will sustain the risk of potentially destabilising increases in capital flight in the run-up to the 2011 polls.


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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