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G. Breuer's Newsletter
February 2011
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
Political information in February 2011 is related to the upcoming October elections, and the more the elections approach, the more that will be the case.
However, there are no substantive advances yet regarding the candidates’ names. The President still has not confirmed that she will run for reelection, as she could for one additional period. In fact, in her opening speech of the ordinary sessions in Congress, she denied having said a word on that issue and called the opposition not to speculate with that possibility in a very informal way. But most of the official party members are increasingly saying that she is the natural candidate.
In the opposition, only few parties decided candidates. The center right party governing the City of Buenos Aires would have confirmed that its main figure, Buenos Aires Major (Mr. Macri), will run, although there is uncertainty as to whether he will run with a coalition of parties that may include the powerful Dissident Peronists. Also, the Civic Coalition, a center party, already confirmed that its main figure, Ms. Carrió, will run. The other important opposition parties, Radical Party or UCR and the Dissident Peronists called Peronismo Federal, are defining candidates in open internal elections, for which reason it is not clear who will be in the ticket and whether they will enter into agreements to go into coalitions. A center left party called Projecto Sur would have also defined candidates.
With this uncertainty as to the names, and with an Administration firmly in power control, still elections look far away. All polls known by now may have relative validity, since the scenario may change substantively.
It is worth noting that the official party is trying to impose “combined-list ballots” for these elections in the Province of Buenos Aires. This form of ballot allows that candidates from different parties for lower offices, such as representatives in the provincial legislature, majors of departments and even the governor, may carry in their ballots the same Presidential candidate. The move is said to benefit Mrs. Kirchner, since she would be able to collect the votes of the traditional Peronists in the Province, and also add a 7 to 10% that a left leaning candidate may bring to her. With these two collections, her first-round victory may be closer.
But traditional Peronists oppose this move, since that may take from them a substantive amount of votes in their districts, which means less power for the future or no power at all. The situation is not solved yet and the issue was carefully avoided at the last meeting of the Peronist Party in the Province of Buenos Aires. This matter may be decisive and will attract plenty of attention.
In the meantime, the issues that may bring about more political effects continue to be the same.
First, inflation is still growing and none of its engines are being attacked. The exchange policy continues to be the same, in the sense that the BCRA still purchases US$ Dollars coming from the trade surplus to increase reserves, and to refrain the US$ Dollar from falling. Public spending and subsidies are also high. In this Administration they prefer to talk of price dispersions and variations and there are very good examples of euphemisms that were used these days. For instance, Ministers issued statements advising housewives to walk to obtain better prices.
There has been a recent wave of requests from Government to private firms to inform how they calculate inflation indexes and some sanctions are said to be coming for those firms. That concern from this Administration as to the real numbers of the economy being known may show that they do understand that inflation may be a very negative presence in this electoral year.
Also, some incidents may be telling that elections are approaching. A US military plane bringing certain cargo for joint exercises with Argentine security forces was inspected in the main Buenos Aires airport. US officers said that the cargo was subject to privileges. The review of such cargo and its eventual seizure took place and that, needless to say, led to a diplomatic incident with harsh words being exchanged. Anti-US policies are said to pay in electoral year. Whether the banter went too far and US sanctions would come for Argentina is still to be known. Certainly, the bilateral relations between the countries are very cold and President Obama is not visiting Argentina in his next visit to Latin American countries.
We also note that Argentina did not receive sanctions from the Financial Action Task Force and the entity said that Argentina is making strong efforts to advance its legislation in money laundering respects. However, Argentina’s situation will be analyzed again in June 2011.
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Economy News
The news on the economy reflects a country that is growing fast, although certain signs deserve attention.
We start by saying that, according to INDEC -the official statistics office-, January inflation was 0.7%. But private estimations say that inflation in such month had been between 1.2% and 2%.
Also according to INDEC, salaries grew 24% in 2010 when inflation for such office grew only 10.9% last year. Thus, salaries would have outgrown inflation in more than double. It is curious that the INDEC numbers for salary increases are very similar to those of the private firms’ inflation numbers.
Speaking of private firms calculating inflation, a good number of them received requests from the Secretary of Commerce asking them to explain the methodology they use to calculate their indexes. These requests were issued in a file opened at the request of holders of selling posts in the Central Market (a wholesale vegetable market in the outskirts of Buenos Aires) who claimed that those private inflation indexes affected their sales. Private firms answered the requests differently: some presented explanations; others said that the explanations were already provided, and a few did not respond. After the firms’ initial reaction, another request was sent and it is likely that fines would be applied to these firms. It seems that this Administration is objecting to these objective measurements of inflation being made public. The problem is that several provincial jurisdictions have independent measurements of inflation, which are public and similar to the indexes prepared by private firms, and far different from INDEC’s ones. It is worth noting that INDEC's inflation index is disregarded by unions when they negotiate their salary increases. Overall, it is worrisome that the Secretary of Commerce follows this path. If fines are imposed, a legal battle may ensue.
In the meantime, unorthodox measures fighting against price increases were passed, such as measures forcing certain companies to roll back prices. These measures brought about legal battles also.
It is also worth noting that the current Administration imposed import limits to additional products, adding 200 products in the list of products that do not have an automatic import license and many more shall be included. This incorporation means that more products will need special requests for being imported to Argentina, and then delays in the import process may take place. The measure is said to try to protect Argentine manufacturing industry, but others are claiming that the real protection here is aimed at the trade surplus, which is the main source of US$ Dollars so necessary these days. This measure may raise conflicts in the industrial sector that it is purportedly protected, since necessary supplies may be affected. Also, the measure raised some tension with neighboring countries, which may see some exports hindered.
We note that tax revenue marked a record high January 2011, reaching up to $pesos 40 billion approximately (US$ 9.9 billion), indicating an economy at full speed. Even though it is not said, there may be some help of inflation in such high numbers for tax collection. A private firm informed that the economy in January 2011 would have grown 0.5% with respect to the previous month, and 8.4% year on year. The numbers would not be bad, indeed.
On the debt side, it is worth mentioning that the negotiations with the Paris Club to arrange the Argentine debt with the countries members of such club are still going on. There is no clear indication that there may be an imminent agreement any time soon.
Also of importance is that the US Supreme Court rejected an appeal brought by Argentina in a case held in a New York court, which had held that a trust created under Argentine law could not be recognized since such trust would give the country the authority to direct its use for its own benefit. The trust in question holds assets that would consist of ADRs being issued by Banco Hipotecario. Holders of defaulted Argentine bonds said that this decision was very important.
As advanced, the economy is still strong, but the usual concerns remain.
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G. Breuer News
For more information, you may read the latest 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, 2011


G. BREUER
Tel: 54-11 4313-8100
Fax: 54-11 4313-8180
e-mail: info@gbreuer.com.ar
Web: www.gbreuer.com.ar


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