Argentina - Economic Briefing March 2003

Macroeconomic Fundamentals Improving but Outlook Clouded by Politics (continued)

Inflation remains contained amid stalled utility rate hike and stronger currency
In February, consumer prices rose 0.57%. The February figure brought the annual inflation rate down to 36.1% from 39.6% in January. Consistent with the trend observed throughout the past year, wholesale prices remained notably above consumer prices, which shows that underlying inflationary pressures persist. In February, wholesale prices rose 0.44% over January, a slight acceleration from the 0.42% rate the previous month. Nevertheless, the annual wholesale price increase dropped to 84.0% from 105.8% in January. A combination of depressed domestic demand, a strengthening currency and court-mandated delays in the implementation of public service tariff hikes adopted in January will keep a more rapid acceleration of consumer prices at bay. In fact, Consensus Forecast participants expect annual inflation to slow this year, decelerating from the 41.0% pace last year to 25.3% in 2003. This month’s figure has again been lowered by 1 percentage point over last month.

Opposition Radical Party appoint presidential candidate but polls virtually unchanged
On 16 February, the Radical Party (UCR, Unión Civica Radical) nominated its official candidate for the upcoming 27 April presidential elections. Leopoldo Raúl Guido Moreau, a current national deputy for the province of Buenos Aires and long-time activist of the party, beat out the favoured Radical Party candidate, Rodolfo Terragno, a national senator for the city of Buenos Aires. Late-February opinion polls confirm that Nestór Kirchner from the Peronist Party (Peronistas or officially PJ, Partido Justicialista) and the current governor of Santa Cruz province has strengthened his first place position with 17.1% of voter preferences. The two-time president and member of the PJ, Carlos Menem, moved a notch up into second place with 14.8%. With 12.2% of the vote, former president, ex-governor of the province of San Luis and also PJ member Adolfo Rodríguez Saá has edged out Elisa ‘Lilita’ Carrió, the former Radical Party (UCR, Union Civica Radical) deputy for the Chaco province from the left-wing political party Argentines for a Republic of Equals (ARI, Argentina por una República de Iguales), who enjoys 11.2% of voter preferences. Since there will be no primary elections, all three PJ candidates will be running in the first round of the presidential elections. Thus, the likelihood that a Peronist will be in the second round of the elections and assume the presidency is very high.

Regardless of the political lean of the new president, the economic agenda of sanitizing public sector balances, reforming fiscal arrangements with the provinces, implementing a credible monetary policy and initiating negotiations over external debt with international creditors is firmly set. However, the success of economic policy will be conditioned upon a successful reconciliation of the fractionalised political landscape without which economic recovery will remain below potential.