The days of the Néstor Kirchner-Cristina Fernández economic model, which turned the economy around from the disastrous ending of convertibility in 2001, appear to be numbered. The most obvious sign of this is the queues of ordinary Argentines outside exchange house offices, waiting to swap pesos for dollars.
This demand for dollars is having an effect on central bank reserves, which are also under pressure from the comparative weakness of soya prices and the devaluation of the Brazilian Real against the US dollar. Soya is Argentina’s biggest single export and taxes on it account for about 5% of the government’s total income. Exports to Brazil are even more important, equivalent to about 5% of national GDP.
The run on reserves is beginning to accelerate. On 26 September the central bank (BCRA) admitted that it had lost US$80m in that day alone. This outflow took reserves down below the US$49bn mark to US$48.98bn. Since reserves peaked in January 2011 at US$52.65, reserves have dropped by US$3.6bn.
One big reason why Argentines have suddenly become more nervous is the imminence of the presidential elections on 23 October. It will be a major shock if President Cristina Fernández does not win in the first round. The opinion polls have her running at well over 40% voter intention and at least 20 percentage points ahead of her closest rival. To win in the first round she needs to score at least 40% and come 10 percentage points ahead of her nearest rival.
The government’s public refusal to acknowledge that inflation is running at over 20% does not convince Argentines that, after October, the government will not suddenly admit that in fact inflation is at 25% to 30% and that a maxi-devaluation is needed to rebalance the economy. The assumption among voters had been that the government would probably win the election and only adjust the model in the dog-days of summer (so early in 2012). Now, most fear that an adjustment will come sooner rather than later.
GDP growth: There is, so far, no sign that the economy is about to skid into recession. In July, year-on-year GDP growth was 7.6%, though it was down 1.2% on June. For the first seven months, economic output was up 9.2% on the same period of 2010. The economy has grown quarterly, year-on-year, for eight years. The government is expecting GDP growth in 2011 of around 8.3%, well above the 4.3% it forecast in the budget for 2011.
Industrial output: Industry has yet to feel the effects of the Brazilian trade barriers and the slide in the Real. In August, industrial output was up by 0.1% on July and by 5.5% year-on-year. In the first eight months of 2011, industrial output was 8.3% ahead of the same period of 2011. In 2010 industrial output was 9.75% ahead of 2009’s.
Trade: The trade surplus in August was US$640m, 39% down on the same month of 2010. In august exports were up by 30%, at US$8.26bn, while imports were up by 43%, at US$7.62bn. In the first eight months of 2011 the trade surplus came to US$7.1bn on exports of US$55.6bn
In 2010 the country ran a trade surplus of US$12.1bn on exports of US$68.5bn. The government is hoping for a trade surplus on US$9.9bn in 2011.
Reserves and debt: The government is budgeting on using US5.77bn of the reserves to pay down the maturing public sector debts. The country’s public sector debt service bill in 2012 is likely to be US$10.6bn, 24% more than for 2011. In 2011 the government budgeted on using US$7.5bn of reserves.
GDP: According to the budget, the government is expecting GDP in 2012 to reach US$492bn and exports to hit US$90.8bn.The government is forecasting that imports in 2012 will come to US$82bn.
Exchange rate: The 2012 budget assumes an average exchange rate of AR$4.4/US$.
Budget: The 2012 budget calls for spending of AR$505bn (US$119bn). This is 19% up on 2011’s budget. The government claims that it will run a primary (i.e. before interest payments) fiscal surplus of AR$46.3bn (US$10.9bn), which is equivalent to 2.2% of GDP. The government’s definitions, however, are not the usual ones: its fiscal surplus, it appears, is calculated after the budgeted transfer of reserves from the central bank.
Conventional fiscal revenues: In August the government’s fiscal revenues (conventionally calculated) fell 84% year-on-year to AR$432m (US$102m). This brought the conventional fiscal surplus to AR$11.7bn (US$2.7bn) in the first eight months. This is 34% less than for the first eight months of 2010.
In 2010 the country ran a fiscal surplus of AR$25bn, 45% up on 2009. The government had set itself a target of a fiscal surplus of AR$39.7bn for 2011.
