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G. Breuer's Newsletter
September 2010
Dear Clients & Friends,
We are sending to you the monthly edition of our Newsletter, where you will find an update on:
Political News
Economy News
G. Breuer News

Please do not hesitate to contact partners Jorge Otamendi and Diego Fissore for any specific question you may have after reading the news below, or for any other issue you may need advice on.
Best regards,


G. Breuer
25 de Mayo 460
Buenos Aires - Argentina
Tel: +54 11 4313 8100
Fax: +54 11 4313 8180
www.gbreuer.com.ar

Political News
The Argentine political environment is becoming more influenced by the fact that presidential elections will take place next year, although there is still time to go. And an unexpected fact introduced a variable that was out of the agenda so far, which was the heart surgery that former President Nestor Kirchner had to undertake. Speculations as to the actual health condition of Mr. Kirchner are plentiful, and the political consequences of that in the official party’s presidential ticket are still unknown. We will come back to this issue later.

The main political news in recent months continues to be a topic in Argentina. This Administration is still in conflict with the Clarín conglomerate media group. It recently indirectly accused the main authorities of such group and also of La Nación of having taken advantage of the owners of the main newsprint company of Argentina to acquire their shares. And an investigation was ordered in this respect. Simultaneously, the President sent a draft law to Congress declaring newsprint being of national interest, which opens the door to more regulation. That move seems to be aimed at increasing regulations on Papel Prensa SA, owned mainly by Clarín and La Nación newspapers, which is the main supplier of newsprint to Argentine newspapers. The result that such draft legislation will have in Congress is uncertain.

In the meantime, this Administration through its relevant officers issued regulations regarding a new media law passed last year that forces media groups to sell TV stations and radio stations. Those regulations would start the one-year term for the owners of media conglomerates to sell participations in many television stations (some of them cable stations) and radios. This legislation is subject to judicial stays affecting relevant articles, and the right of the Administration to issue such regulations is at least dubious. The conflict was not resolved yet by the Supreme Court and anytime a judgment may be rendered on this matter.

Also in the meantime, the Administration cancelled the license to offer internet services to Fibertel & Cablevisión, companies of the Clarín Group, giving them 90 days to terminate operations. Such company provides internet access to around 1 million subscribers, and several judicial challenges were filed. The issue may also end up being resolved by courts, if not by the Supreme Court itself. Now, measures against Cablevision as provider of cable TV services have been launched also.

Those actions by the government are said to be making middle-class voters, still the major political force of the country, very skeptical as to the actual intentions behind the attacks, and the idea that all of these measures are intended to end monopolies in the media sector may not be selling well.

In many ways, the position that the Supreme Court assumes on the new media law will be key to see whether such law and the measures against Cablevision may be implemented or not, and when.

Speaking of the Supreme Court, this highest tribunal of the country was very much named these months. First, because it ordered that legal actions against the governor of one province, Santa Cruz (the Kichner’s home province), for his refusal to abide by an order issued by the Supreme Court to restate a prosecutor that had been removed by the executive power of such province. The Supreme Court also suggested Congress could approve intervening the province to make the province comply with such Supreme Court order. Two draft laws were submitted by opposition parties in that respect.

The Santa Cruz provincial executive power and the national Administration are preparing to resist the Supreme Court action and, eventually, Congress intervention. As it is easy to see, a major conflict of power is very close.

The Supreme Court also issued a very uncomfortable decision to the national administration when it declared that a former Chilean guerrilla member had grounds to be extradited, and that the only manner for such person not to be extradited would be if he is granted refugee status. The extradition of this former guerrilla member is being requested by Chile, and he is granted refugee status, many uncomfortable issues may be brought again to light in Argentina, such as what would be the standards to judge the actions by former guerrilla members.

Because of the many decisions that the Supreme Court may issue against the national administration and the aggressive stance taken by the latter that is even calling for rallies to pressure the members of the Supreme Court there are grounds to see that a major political crisis may be in the making. Hopefully, objective and technical actions are taken by those who have to take them, and that scenario will not take place.

If the highest tribunal of the nation is not respected by the other powers in matters that were put to its decision, the legality in Argentina may suffer a serious setback, with unknown consequences.

Coming back to an issue that was of great impact, we mention that, as said before, Mr. Kirchner was rushed to hospital the second weekend of September, and an angioplasty surgery was performed on him. The surgery was successful, and he was released from hospital only days after it. The day following his release, he was attending a political rally, where he was supposed to be the key speaker, but his wife replaced him. Mr. Kirchner is supposed to have been asked to reduce his commitments, and he seems to be paying little attention to such medical recommendation.

Mr. Kirchner’s health episode is the second in this year, and that have prompted speculations as to the real condition of his health. That fact has made that many say that Mrs. Kirchner is best suited to be the official party’s candidate for next year’s elections.

Apparently, the causes of Mr. Kirchner health problems would be his stress level, among other causes. The week before his health episode he had a very stressful political meeting where he publicly confronted the governor of the Province of Buenos Aires, Mr. Scioli, over words that the governor would have said related to the high levels of violence that the Province is experiencing.

The public reprimand that the governor suffered would have made him take distance from Mr. Kirchner, and other municipal leaders of the key Great Buenos Aires area may be taking the same stance. Even the same day of the reprimand there was a meeting of municipal leaders who openly would have sided in a different sector from Mr. Kirchner.

All of this means that Mr. Kirchner may be finding that his strategy in the key province of Buenos Aires is suffering setbacks and that his plans are facing strong opposition by very powerful players in such province within this party. Mr. Scioli ranks much better in opinion polls than Mr. Kirchner. And the elections are almost (and only) one year away.

The situation in the official party in the province of Buenos Aires may change, since there seems to be internal disagreements as to candidacies for next years’ elections and also the presidency of the party by the most important union leader of the country is being resisted by the political wing. Probably, there will be news on this front in our next report.

The opposition, in the meantime seems also to be within disputes and at this point, it is not clear what would be the alliances and who will be the candidates in the groups that have the higher chances of being a serious contender to the current Administration, such as the Federal Peronists and the Civic Accord. Probably, in the coming months the question on these fronts will start to be answered.

The issue that may concentrate most of the attention now would be the relationship between the Supreme Court and the executive power. As always, Argentina’s political environment offers may possible outcomes that we will report in our next newsletters.

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Economy News
By the end of August, the Argentine Central Bank loosened its 2010 money supply targets, easing monetary policy despite rising inflation. According to some analysts, this increase in the money supply will create further incentives to inflation.
Central Bank increased its upper limit for third-quarter money supply growth from 19% to 28.8%. The upper limit will be 29.4% in the fourth quarter. The causes invoked by the monetary authority to take such move was that money supply targets need to follow the growth of the economy, which were much higher than expected.
In the meantime, the Central Bank continues to acquire US$ Dollars from the trade surplus. Thus, it seems that there would be no monetary restrictions on the growth of the economy, and most private firms forecast a growth of more than 8% this year, with inflation levels between 25% and 30%.
According INDEC, the official statistics office, Argentina’s jobless rate fell to 7.9% in the second quarter of 2010. The figure is an improvement on the 8.3% unemployment rate reported for the first quarter of this year. Such figure implies that more than three million people in Argentina are having a hard time finding a job.
INDEC’s statistics are being closely scrutinized by private firms. This month, a group of universities that formed a council created by the national administration to monitor such office sent a report to the Ministry of Economy that would contain heavy criticism to the inflation index that INDEC prepares. Such report would not have been received yet by the Minister of Economy.
Official data said that Argentina’s trade surplus shrank 34% in July from the same month a year ago as imports surged, led by supplies for industry and consumer goods during economic recovery.
The US$ 883 million surplus was below some private forecast, but some analysts said the strong growth in imports of goods for industry was a positive sign.
As to the trade balance, July 2010 exports rose 22% to US$ 6 billion, led by agricultural exports. Exports also climbed based on auto sales to neighboring Brazil. Imports climbed 43% to US$ 5.12 billion, driven by purchases of intermediate goods led by steel minerals and capital goods including telephone, television, and auto parts.
Industrial activity grew 11.8% to date in 2010, with an 8% year-on-year expansion in July, according to a report issued by Argentine Industrial Union (UIA).
As to the debt market, the most relevant news is that Standand & Poors improved the credit ratings of Argentine state debt from B- to B, although it said that some of the problems of Argentina continue to be an issue. This improvement impacted favorably in the pricing of Argentine debt.
As it may be seen, the Argentine economy seems to be growing strongly and there are good news. But inflation continues, and no clear actions are seen from the authorities to face the problem.

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G. Breuer News
For more information, you may read the September edition of our Boletín Informativo, sent to our Argentine clients & friends.
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G. Breuer
25 de Mayo 460
Buenos Aires - Argentina
Tel: +54 11 4313 8100
Fax: +54 11 4313 8180
www.gbreuer.com.ar


Please note that the information given in this bulletin is for general purposes only and does not intend to provide comprehensive legal advice on any issue.
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© G. Breuer, 2010.


G. BREUER
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Fax: 54-11 4313-8180
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