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Peso continues strengthening trend
In March, the peso appreciated 7.7%, which was up from the 1.4%
strengthening observed in February and a continuation of the currency
rebound observed in prior months, despite the Central Bank’s February
easing of foreign currency controls (for details see March 2003
edition). As a result, the currency closed March at 2.97 pesos to the
US$, which is 13.0% stronger than at the end of December. The March
rebound – the highest since the devaluation last year – was the result
of strong US$ selling in the agricultural sector, as farmers are cashing
in foreign currency obtained from harvests. Furthermore, high peso
deposit interest rates in combination with continued Central Bank
intervention are also seen as having bolstered the currency. Rates on
30-59 day term deposits are currently at an annual 20.6%. The government
is not eager to see the current currency strengthening to persist since
authorities wish to continue to benefit from the inflationary pass
through of a weaker peso on public finances and to maintain the
country’s competitive position as an exporter in international markets.
Panellists see the current currency rebound as a temporary event and
anticipate the peso to weaken throughout the year.
Inflation continues downward trend favoured by
stronger currency
Consumer prices rose 0.59% in March, virtually unchanged from the 0.57%
increase registered in February. The March reading brought the annual
inflation rate down further from 36.1% in February to 31.2%. While an
absence of public utility tariffs hikes continues to buffer consumer
prices from a more robust surge, the current strengthening in the
currency is also serving to contain inflation. In March, wholesale
prices, which include prices for imported goods, experienced the third
monthly decline in six months. The 0.56% monthly drop in wholesale
prices brought down the annual price increase from 83.9% in February to
62.5% in March. Participants expect consumer price pressures to ease
further this year with annual inflation decelerating by year-end.
Peronists continue to head polls but little
change in voter sentiment
Late March opinion polls place Nestór Kirchner from the Peronist Party (Peronistas
or officially PJ, Partido Justicialista) and the current governor of
Santa Cruz province at the front of voter sentiment. Kirchner has
strengthened his first place position and is now expected to garner
19.1% of the votes (17.1% in March 2003 edition). The two-time president
and member of the PJ, Carlos Menem has strengthened his second place
position and is now seen as garnering 16.6% of the vote (14.8% in March
2003 edition). Former president, ex-governor of the province of San Luis
and also PJ member Adolfo Rodríguez Saá holds 15.9% of the vote,
followed by 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 12.6% of voter preferences. Former
Economy Minister, independent candidate of the Movimiento Federal
Recrear and favourite of international investors, Ricardo Lopez Murphy,
has moved up from single digit support to 10.3%. The Peronists have
decided not to hold primaries and to permit all of their candidates to
run in the first round of the presidential elections on 27 April. Given
that the three front-runners are Peronists and that polls of recent
months have not exhibited significant variations in favour of other
parties’ candidates, the likelihood that a Peronist will assume the
presidency on 25 May is very high.
Given current polls, the second round run-off on 18 May is likely to
include Kirchner, Menem or Sáa. Second round polls indicate that
Kirchner would be likely to win over Menem with 48% of the vote.
Similarly, Kirchner is likely to win over Sáa in the second round but
only by a very tight margin. In the event of a run-off between Sáa and
Menem, Sáa would win with 46% of the vote according to the polls.
The incoming administration will have a number of key policy challenges
to tackle in the face of a fragmented and lame duck Congress.
Congressional elections are scheduled for 12 October with the new
legislature beginning its session on 10 December. Important legislative
items on the incoming government’s are likely to include: a new IMF
agreement, debt restructuring, utility price increases, tax reform,
financial system sanitation and a new co-participation regime with
provincial governments. The effectiveness at which the new
administration to progresses on its legislative agenda will determine of
the pace and durability of the current improvement in the economy. |
