Argentina - Economic Briefing June 2003

Kirchner Assumes Presidency with Weak Mandate

On 25 May, Néstor Kirchner assumed the presidency, after former president Carlos Menem pulled out of the run-off elections in the face of a sure defeat. Owing to Menem’s withdrawal, Kirchner has a weak mandate in terms of direct popular support. Therefore, Kirchner faces not only strong opposition from other parties in the national legislature and provincial governments but also from within his own Peronist party, which will render the task of limiting public spending without choking off the incipient yet still tentative recovery even more difficult.

Kirchner becomes president by default as Menem withdraws from second round
Despite his first round victory in the 27 April presidential poll, two-time president and member of the Peronist Party (Peronistas or officially PJ, Partido Justicialista), Carlos Menem, decided to withdraw from the second round vote on 18 May, as polls foreshadowed a resounding victory for his challenger Néstor Kirchner. As a result of the absence of a second round, Kirchner automatically won the presidency. Néstor Kirchner, who was inaugurated on 25 May, holds a very weak mandate, having won only 22.0% of the vote in the first round. In addition, his administration faces strong opposition in the legislature not only from other parties but also from the more conservative members of his own Peronist Party. Finally, even though the majority of the nation’s governors are from Kirchner’s party, he does not enjoy the support from all governors. Therefore, governance is likely to be undermined by the current fractionalisation of the political landscape, unless the new president successfully reconciles differences within his party or searches for support in left-of-centre opposition parties who more closely identify with the new Kirchner’s agenda.

President promises economic policy continuity with higher public investment
The new administration received a good share of its voter endorsement by promising economic policy continuity. Roberto Lavagna, the Economy Minster from the outgoing Duhalde government, has been kept on board. Lavagna´s exchange rate policy clearly favours a weaker currency to spur the external sector and recent efforts to encourage Central Bank intervention in the foreign exchange market in the event of sustained appreciation, are likely to be supported further. Furthermore, Lavagna is seen to counterbalance the need for strict public spending discipline with his intention to keep up fiscal spending in order to sustain the current economic upswing. Moreover, Lavagna is characterised as a tough negotiator, who will aggressively strive to reduce not only interest rates on Argentina’s external debt but also its principal payments in order to reduce the overall debt servicing burden. Finally, Lavagna’s overall responsibilities are also expected to change moderately, as the Kirchner administration hopes to make him the key figure in relations with the International Monetary Fund (IMF) and in the pending negotiations with international debt holders. The minister responsible for infrastructure (renamed Ministry of Federal Planning, Public Investment and Services), Julio Miguel De Vido, will assume the responsibilities of implementing Kirchner’s multi-billion dollar public works project, which uses public resources to rekindle domestic economic activity.