External Pressure, Internal Chaos

If ever there was one, the honeymoon is over for President Cristina Fernández.  In less than a year, she has managed to waste the (little?) political capital that her husband transferred along with the presidential band.  Far behind remain the times when the world looked up at her as a signal of changing times in Argentina, maybe even a maturity that the nigh-adolescent behavior that her husband often showed never allowed.  "She was the thinking one", said many and thought more.

Indeed, she turned out to be the thinking one - and the talking one.  Everything else was done by her husband, ex-President Néstor Kirchner.  The fiscal voracity they showed when they tried to raise farmer export taxes for the fifth time in as many years backfired violently - and turned people's sentiments into that of hatred and disgust (which any president must avoid).  Furthermore, the tinkering with inflation indices worsened and trust in the country dramatically fell - generating a capital flight only comparable to that of 2001.  Until this point, things were bad but Argentina suffered from a self-induced illness.

Little could the Kirchners imagine that the very same external economic conditions, which were undoubtedly the single most important factor that kept them in power, were about to change direction fiercely and mercilessly.  Along with the sub-prime crisis (shamelessly dubbed Jazz Effect by President Fernández), came the end of Argentina's good fortunes.  No longer could the government milk the export taxes, since commodity prices around the world were falling at unimaginable rates.  What now?

Fortunately, politics is not short in imagination.  Less than 60 days ago, the government decided unilaterally to nationalize the private pension system.  Granted, the system is less than 2 decades old and full of flaws - but certainly there are other remedies before cutting the limb altogether.  Wrokers's reactions, however, were not as organized or as noisy as the farmers' - after all, people have to go to work and lack the organizational structure of the 4 national agricultural entities.  The lower chamber passed the law very easily into the Senate, who have a very tough job, for the second time this year ...


A rising dollar, falling employment, falling commodity prices, worsened public sentiment ... all seem a well too common picture for old timers, and the outcome is all too familiar and lacking serious alternatives. While the world tightens its belt, Argentineans are finally realizing that the Kirchners are very efficient riding good waves, but are not fit to captain stormy waters ... and stormy waters, these definitely are.

Global Crisis, Local Difficulties

For the first time in the Kirchner era, the Ks will have to face a seriously adverse external economic environment.  Although they have tried to deny it once and again, twice in the past 10 days has Mme President said, in her shy and subtle terms, that Argentina will be affected by the global credit crisis.

This is a new phenomenon and as such, has had a double effect: one, the opposition is gathering and waiting with great expectation the outcome of the crisis and its impact on inmediate government strength (heavily impacted after the tax revolvt which lasted March thru July), and second, the Ks themselves are wondering how good a storm pilot either of them is!  This is because the external conditions which Mr. Kirchner inherited from his then-godfather-now-adversary Duhalde had been the most favorable in more than 50 years - and a downturn was not in any of their plans.

This will place extra pressure on the fiscal accounts, bearing in mind that 2009 is an election year and as such, there is increasing pressure to release funds instead of increasing savings on public works.  This, again, will be a stress test to the Ks real political power, that had virtually not been challenged since the farmer's revolt.

2008 will be a make or break year for the Kirchners: if they survive a year with 4 months of tax revolts and now extremely adverse (and worsening) economic conditions, it might mean they will be around for a while.  If the response to the global crisis - which due to the lack of credit in Argentina will be mainly felt through a fall on export demand and an increase of imports - is not as sound and ccoherent as expected, we might well end up with the longest lame (female) duck in history ...

The Story Behind the Suitcase

As in every gangster story, there had to be a mysterious suitcase with an unusually large amount of money. What seemed like a routine baggage check (done to everyone who enters the country), ended with the discovery of a suitcase containing U$S 800.000 that Mr. Guido Antonini Wilson was bringing into Argentina.  Since noone is allowed to bring into the country more than U$S 10.000, the money was confiscated until the matter was settled.  And settled is one thing it was not: in fact, the suitcase affaire (locally referred to as the valijagate) might well prove to be Mrs. Kirchner's political undoing, since the money was allegedly used for dirty campaign financing (and it was recently said that it was one of many suitcases entering the country coming from the same plane, in fact, that there were other U$S 4.200.000 travelling on that plane).

It is impossible to just how worried Mrs. Kirchner is at this moment; she has proven to put up a very good poker face for some tough affairs which her administration has undergone.  Reporters are very cautious, but firmly following trails to figure out exactly where the valijagate points.  This week, Mr. Antonini will be testifying and maybe confessing some very dark secrets regarding the protection that Claudio Uberti (former Gov't staff, fired due to this affair) promised him as he was discovered at the airport.  Everything points to dealings between Venezuelan and Argentinean government and, as was mentioned, illegal campaign money.  Phone traces show that Uberti called the Olivos presidential residence several times that morning, presumably asking for instructions on how to proceed in light of the unplanned baggage discovery.  At a time of very low popularity and much public concern about inflation and insecurity, a corruption scheme like this could be the final nail on the coffin of an already (and far too early!) moribund administration.

Nestor Kirchner assumed many liberties during his term; more than the 22% vote he obtained in 2003 duly granted him.  However, there was almost no talk of corruption during his term in office, except some scattered second-rate issues (Skanska kickbacks being the most noteworthy).  Cristina Fernandez de Kirchner has not been that lucky: in less than a year in office, she has had to tackle the popularity-devastating farmer tax revolt, which ended unfavorably for the government in spite of an unnecessarily long fight.  Now, the valijagate might tie in to her very campaign financing, and that may prove too strained a test for her to survive.

Argentinean citizens don´t have the same tolerance as they did in the 2003-2007 post crisis period.  How will this unfold?  Will a dirty financing scheme be uncovered and, if so, what are its implications for the President?  If Mrs Kirchner is ousted, is anyone ready to accept the responsibility and do the dirty part of the job that remains to be done (freeing markets, truing up inflation, ending insecurity, etc.)?

It's amazing how much that suitcase resembles Pandora's Box ...

Back to our "Boring" Sunday Headline News - July 20th 2008

The Farmer/Government conflict is over ... or is it?

Clarin and La Nación, Argentina´s largest papers, are still covering the fallout of the conflict - which is, for Cristina Kirchner and the FPV (Frente para la Victoria) bunch, not over yet.

In La Nación, Province of Buenos Aires governor (and ex-VP alongside hard-line Néstor Kirchner) is asking for "self-criticism" amidst the official radio silence on the conflict's resolution last week. The Senate's vote and later derogation of Resolution 125 marked the long-awaited victory for the farmers but opened a "Now what?" phase which has been exacerbated by the President´s silence regarding this matter.

The second news-making event is a calculation of our National Savings if subsidies were cut. Ex-President Kirchner elaborated and intricate network of subsidies for basically all economic activities for which prices were "frozen" (electricity, gas, water, bus, trains, subways ...). Untangling it without setting free the seven-headed beat of inflation will be no easy task, especially when there is no real conviction of even believing that inflation is a problem to start with.

The third piece of news is a Tango show in La Boca ...

Clarín is also dealing with thje fallout of the conflict. Two Cobos followes, who had a job in the government, were apparently asked to resign. This has been one of many official measures taken from the government to ensure VP Cobos feals the heat of his decision. Last week, when he asked for the Tango 02 (the equivalent of the Air Force 1 for the VP) to head home to Mendoza (Argentinean province neiughboring Chile), his request was denied by Oscar Parilli, the President's secretary. He has gotten harrassed by FPV supported and told off by countless politicians. The crisis which he has set off in the government will only be properly measured in a few months.

Although he has denied resigning, I speculate he will run for a Senator post next year; this would give him an exit with some dignity and allow the President to save face after having her VP issue the decisive vote
against her export-tax bill.

Other news refer to Martín del Potro´s recent tennis victories.

(La Nación cover is not reproduced because the new brilliant online identity prevents me from copy-pasting the cover).

Reality: Expect the Unexpected

Argentina is the country of the unexpected.


In 2003, when Menem was the front-runner in the presidential elections and favorite for his third term. However, days before the ballotage (second round), he surprisingly pulled out of the race, leaving Nestor Kirchner, an unknown provincial governor, a job as President with 22% of votes.

A lot of water has gone under the bridge since then, but one truth remains: it is almost impossible to predict what might happen in Argentine politics. This week's Senate vote on Resolution 125, regulating the March 11th increase on soybean export tariffs was not the exception.

4 months of escalating conflict between the agricultural sector and the government had been enough and no solution was forecoming: therefore, Julio Cobos; the vicepresident from the traditional Radical party turned Kirchner follower, prompted Mme President to send the resolution to Congress. Last week, a tight battle was fought and the Kirchners won 129 to 122 in the Lower Chamber.

Before the vote in the Senate, both groups rallied their supporters (ex-President Kirchner had less than 100k supporters in Congress, the farmers had 200k plus in Palermo, a high-end neighborhood north of the city), and while the farmers won the street, another narrow victory was discounted by the Kirchners. Little did they know that, not only would they not win, but they would loose under Vice-President Cobos' "un-tying" vote (voting had ended 36 to 36, and the Constitution said in this case the President of the Senate would vote and untie).

24 hours earlier, ex-President Kirchner promised in his rally that the Peronist party would respect the Senate's decision, prompting the farmers to do the same (and of course discounting a sure victory).


As luck would have it, at 4am and after 18 hours of discussions, things were tied in the Upper Chamber, and the hour of truth came for Cobos. Would he prioritize his standing and point of view, or would he vote as his running mate and party? He voted with his heart, and the unexpected became part of history once again. Today, the resolution was revoked and tax levels returned to March 10th levels (until a new plan is put in place, as a result of a reasonable and transparent process and not as a decree).

President Cristina Fernandez and ex-President Kirchner had vowed to respect the Senate's decision, and they had resolved against the Resolution. All of the political capital spent during the 127 days of conflict had been uselessly dilapidated. Society - and Congress - had put a large STOP sign in front of the Kirchners and provided the largest political defeat since 2003. She stands weakened now but, what seems worse, the opposition stands tall. Damage control may last as long as the end of 2009, when partial Congress elections will be held, and the opposition will most likely recover seats from the Kirchners.

Then again, always expect the unexpected ...