Expert Commentary: Argentina - There May Be Trouble Ahead

Tom Burroughes

20 November 2012

This publication occasionally runs commentary on geopolitical issues of interest to wealth managers from Exclusive Analysis. In this example, Carlos Caicedo, director of Latin America forecasting at the organisation, looks at the problems in Argentina and the fact that public discontent would weaken the government’s grip on power. As ever, while this publication does not necessarily share the views expressed here, it is delighted to publish views about an issue of great importance.

Caicedo has highlighted, in recent reports, a growing frequency and number of participants in protests around the country. “On 13 September 2012, 100,000 demonstrated in front of the Presidential Palace. On 8 November 2012, the largest protest in 30 years took place. Increasing frustration with US dollar controls, rising crime, corruption, high inflation and President Fernández's alleged plans to amend the Constitution to allow for her re-election resulted in over one million Argentines taking to the streets,” he said.

Caicedo continued: “The next nationwide strike, scheduled for 20 November, is likely to compound already high political instability and civil unrest risks. This nationwide strike is likely to severely disrupt cargo and poses a high risk of violence at the Presidential Palace in Buenos Aires.”

Risk Implications

In a report released on 19 November, Caicedo said: “The 20 November strike is expected to prove very disruptive as Hugo Moyano has secured the support not only of the Argentine Agrarian Federation, but also of other labour federations. These groups have the capability to enforce stoppages in key economic sectors, including banking and utilities, as well as the transport sector. Lorry drivers in particular could be affected.”

“In Buenos Aires, the risk of the 20 November protest turning violent is high following the decision of CTA and radical groups such as Barrios de Pie y la Corriente Clasista y Combativato to hold a demonstration in front of the Presidential Palace,” he said.

Outlook for 2013

Caicedo said the 20 November one-day strike is the beginning of a string of protests against the government of President Fernández. He said: “New strikes, lasting longer and proving even more disruptive, are expected in the first quarter of 2013, when labour unions would start negotiating salaries. However, there are no discernible leaders of these protests, and the mainstream opposition has so far failed to capitalise on the growing discontent. As a result, we expect the government to ‘muddle through’ until 2015.”

“President Fernández's mandate could be cut short if street protests resulted in the killing of dozens of demonstrators. The killing of 25 protesters in December 2001 forced the resignation of President de la Rúa,” Caicedo said.

“Growing discontent and a further loss of confidence in Fernández's leadership would likely result in electoral defeat in next year's congressional elections. This and her slim chances of re-election would likely turn Cristina Fernández into an ineffective political leader. Without a congressional majority, she would likely resort to state interventionism, singling out business leaders considered hostile to her government, and introducing stringent regulatory measures directed at media groups, utilities, telecoms as well as foreign companies accused of evading taxes,” he said.

Background on a strike

On 18 November 2012, Eduardo Buzzi, the head of the influential Argentine Agrarian Federation, warned that the 24-hour, nationwide anti-government strike, taking place on 20 November, would be one of the most disruptive since 2001. The FAA is joining forces with the CGT and the CTA, the country's two main labour federations. Buzzi said that the FAA would set up road blockades similar to those of the 2008 farmers' strike that paralysed the country for three months and halted grain exports. Several airlines have announced that they would cancel all flights on 20 November. The strike is being driven by workers' demands for better salaries in the face of around 25 per cent inflation and also by farmers' rejection of heavy export taxes.