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Currency strengthening prompts Central Bank to
ease exchange controls
The peso appreciated 6.8% in December. The December strengthening was
the most pronounced observed in 2002 and brought the currency to 3.38
pesos to the US$ at the end of the year. Owing to the last minute
strengthening, the year-end exchange rate was much stronger than market
expectations and helped lower the annual depreciation rate from 72.3% in
November to 70.4% for the year. The stability of the exchange rate
prompted the Central Bank to ease capital controls further. Companies
will now no longer be required to obtain Central Bank approval for debt
service payments to foreign creditors. In addition, monetary officials
raised the ceiling on dollar purchases to US$ 150,000 from US$ 100,000
and increased the daily limit, whereby exporters are required to deposit
foreign currency with the Central Bank from US$ 200,000 to US$ 1
million. Finally, the Central Bank raised the amount of foreign currency
reserves as a percentage of total assets permitted to be held by banks
to 6%. The modifications to the exchange rate policy became effective on
1 January and are anticipated to ease the currency appreciation. The
currency strengthening trend has moderated only slightly with the peso
closing the week of 10 January 1.2% weaker at 3.34 pesos to the US$, but
still above the 3.35 pesos to the US$ year-end 2003 level envisioned by
the Central Bank in its monetary programme. Monetary authorities may
consider further moderating capital controls if the peso appreciation
continues. However, participants do not anticipate the current exchange
rate stability to persist throughout the year. In fact, the peso is seen
as depreciating 23.1% to close at 4.34 pesos to the US$.
Opinion polls continue to favour Peronists but
no clear favourites yet
With presidential elections scheduled to be held in 27 April 2003 (date
changed from 30 March in November 2002), a new government will be
inaugurated on 25 May 2003. The electoral outlook continues to be
overshadowed by uncertainty, as voters remain dissatisfied with the
selection of existing candidates. The majority of the population
believes that the mainstream political parties have been discredited by
the persistent political and economic crisis. Opinion polls point
towards a highly disjointed range of voting intentions and no candidate
is clearly favoured, as none commands more than 20% of the vote and all
candidates are converging towards similar voter support. According to
the most recent voter opinion polls in January, former president,
ex-governor of the province of San Luis and member of the Peronist Party
(PJ, Partido Justicialista) Adolfo Rodríguez Saá is experiencing a
notable decline in support. Saá’s support has dropped steadily from
18.9% in September to 14.0% in December and further to 12.5% of the vote
in January. Similarly, Carlos Menem, two-time president and also a
member of the PJ, has fallen into fourth position at 10.2%, after having
been in second place just three months ago. The second place in opinion
polls is now held by independent candidate Nestór Kirchner, who is also
a member of the Peronist Party and the current governor of Santa Cruz
province. Kirchner has virtually doubled his share of the vote since
September and now commands 11.8% of voter support. Elisa ‘Lilita’ Carrió,
the former Radical Party (UCR, Union Civica Radical) deputy for the
Chaco province and now head of the left-wing political party Argentines
for a Republic of Equals (ARI, Argentina por una República de Iguales),
is in third place just closely behind Kirchner with 11.1% support. The
appetite for conservative politics seems limited among Argentines under
the current dire social conditions. The centre-right candidate, former
Economy Minister, Ricardo López Murphy, who is running under the
independent banner of the political movement, Federal Movement to
Recreate (MFR, Movimiento Federal Recrear) has gained some ground but
remains well behind the leading candidates with 7.5% of the vote.
The poll developments over the past half year indicate that the
presidential election is likely to be decided in a second round run-off
vote and, thus, the future president’s mandate is likely to rest on a
carefully crafted coalition. As a result, the implementation of
long-term economic restructuring and a fortification of damaged
political institutions - both key elements to a sustainable economic
recovery in 2003 – will prove very difficult. |
