Brazil & Southern Cone - November 2010 (ISSN 1741-4431)

Despite the ebullient reaction of the financial markets to the news of the death of Néstor Kirchner, Argentina's economic policy is unlikely to change much.

After Kirchner's death was confirmed on the morning of 27 October, the prices of Argentine debt soared on traders' hopes that Kirchner's isolationist (anti- globalisation) and populist economic policies would be dumped. Sovereign bonds rose sharply as the risk premium on JPMorgan's Emerging Market Bond Index for Argentina shrank nearly 10%. Argentine ADRs soared 7.9%. Energy stocks, which had wilted under Kirchner's policy of trying to control inflation by capping utility prices, rose even more. The biggest riser on 27 October, however, was Grupo Clarí­n, a media company, which rocketed 22%. The government and Clarí­n have been locked in an series of bitter rows since the media conglomerate took the side of agricultural producers in row over export tax increases in 2008; in 2009, the government ended Clarí­n's lucrative and semi-exclusive deal to broadcast football five years before the contract was due to end in 2014. 

The bull argument for Argentina is that with successful neighbours such as Brazil and Chile, it was only Kirchner's (and Cristina Fernández's) perverse populist economic policies which were preventing business from booming. The drawback to this argument is that Argentina is, in fact, booming. The central bank is now forecasting that the economy will grow by 9% in 2010, thanks to a record 55m t soya crop. It had previously been forecasting 7.5% GDP growth for 2010. Under Kirchner the economy grew by an average of 8% a year. Even when the rest of the world (including Brazil and Chile) went into recession in 2009, Argentina still managed GDP growth of 0.9%.

Kirchner's economic policy innovation was to substitute Argentines' savings for foreign savings to finance government spending. The Fernández government renationalised the private pension system in 2009 to feed its need for other people's cash. It also periodically swipes reserves from the central bank.

Convinced Kirchneristas, such as Guillermo Moreno, the secretary for domestic trade, argue that there is no sign of the cash running out. In a bizarre academic lecture on 2 November, Moreno claimed that Argentina had US$40bn in “physical" dollars and that the country did not need [an inflow] of more than US$7bn or US$8bn to achieve an investment rate of 28% which would, in turn, guarantee 8% annual GDP growth.  It is far from clear what Moreno means by the “US$7bn to US$8bn". He probably means the annual trade surplus. In 2009 the country ran trade surplus of almost US$17bn. In the first nine months of this year the surplus was US$10.5bn on exports of US$51bn.

What is likely to happen, at least in the short term, is the Kirchner's left-wing populism is likely to mutate into corporatism, which is another aspect of the Peronist tradition. Héctor Méndez, the president of the Unión Industrial Argentina, the lobby for big business, said on 30 October that he did not see much changing on economic policymaking. The key figure is likely to remain Julio de Vido, the current planning minister, who held the same position in Kirchner's own government (2003-2007). Méndez said that he had already held meetings with the controversial trade union leader, Hugo Moyano, the head of the general confederation of labour (CGT). The two agreed to work for social peace, reduce confrontation and negotiate deals where possible.

What will change is that power will become more diffused. Kirchner, frequently took part in eight policymaking meetings simultaneously. Such a prodigious workload may have contributed to his relatively early death but it also demonstrated how central he was to the running of the Fernández government. 

• Inflation: In September, the consumer price index rose 0.7%. This brought the 12 month inflation rate to 11.1%.  Interestingly, the price of goods rose by 0.9% while the price of services (less tradable and therefore often a better indicator whether consumers are losing their sense of relative prices) was up by 0.5%.