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The Next Argentine President Will Inherit Serious Economic Difficulties

Opinion polls in Argentina in the run-up to the elections on 25 October suggest that, whilst Daniel Scioli, leader of the pro-Kirchner Front for Victory, still has a sizeable lead over his main rival, Mauricio Macri, it may not be sufficient to avoid a run-off in November.  Scioli is still shy of the 40% of votes and lead of 10 percentage points over his nearest rival needed to win outright – and the Peronist movement has taken a knock by a recent court ruling that the election for Governor of Tucuman must be re-run because of electoral malpractice, including the burning of ballot boxes.
The state of the economy will be a key issue for the election.  The Government is ramping up pre-election spending, thanks in part to a 3-year currency deal with China, which has pushed up growth figures to 2.3% in the second quarter of this year – and it predicts 3% growth in 2016.   But little is being done to correct the real structural weaknesses in the economy.
The next Argentine President will assume office on 10 December with reserves at an 8-year low of $6bn, a fiscal deficit of 7.3% of GDP, and even at the Government figure of 14.5% the highest inflation rate in Latin America, aside from Venezuela (compare that with 2.7% for Mexico and 4.6% for Chile).  Argentina has been hit badly by Brazil’s recession – Brazil’s sovereign credit rating was downgraded recently to ‘junk’ – and Argentine exports to Brazil, its largest export market, have dropped by 22.6% this year.  Argentina also has a significant energy deficit, having to rely on energy imports (mainly from Bolivia), albeit assuaged by the low cost of oil.  The country may have large shale gas deposits – and is cracking down hard on local opponents of fracking – but exploitation is as least a decade away.  It is still a pariah in the international bonds market, having defaulted twice since 2001, and the Government has discouraged direct foreign investment in the country.
The next administration, if it is to turn the economy around and avoid a major devaluation of the peso, will have to reassure foreign investors, settle its debt problems, stem capital flight, and loosen its currency and trade controls.  It is no surprise that many in Argentina have embraced the bitcoin to avoid government restrictions.  Macri is probably the businessman’s favoured candidate but none of the three front-runners has yet put forward a convincing programme of economic reform.  Nevertheless, Argentina is Latin America’s third largest economy behind Mexico and Brazil and may muddle through – some analysts believe that anything will be better after Cristina de Kirchner leaves the Presidency, since she had none of the economic skills of her husband.  But so far, her attempts to gain Argentina’s acceptance as a BRICS (Brazil, Russia, India, China, S. Africa) have been quietly deflected.

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