Analysis: Fernandez image wilts in year-end Argentine heat wave

Hugh Bronstein
Lightning strikes over Buenos Aires during a thunderstorm, December 31, 2013. REUTERS/Marcos Brindicci

By Hugh Bronstein

BUENOS AIRES (Reuters) - Argentina ends 2013 with a heat wave that has sparked protests over electricity shortages, taking another chunk out of President Cristina Fernandez's popularity as she faces a rocky final two years in power.

The populist leader's steady loss of political support may force her to relax some long-held policies that have kept investors out of Latin America's third largest economy.

Budding signs of flexibility in dealing with the International Monetary Fund and the Paris Club of creditor nations might eventually make Argentina safer as Fernandez eases her trademark tough stance vis-à-vis the markets.

With reserves falling, inflation rising and confidence slammed by heavy-handed currency controls, Fernandez was feeling the heat before families in some of Argentina's most populated areas took to the streets last week, banging pots and pans and shouting for their electricity to be reconnected.

As the sweltering Southern Hemisphere summer stresses demand for air conditioning, protesters say the government is not providing the basic services it owes to taxpayers.

The electricity shortages are a consequence of under investment in the country's distribution network.

The president has cut back her public appearances since undergoing head surgery in October, the same month that her allies got thumped in the mid-term congressional election.

The latest poll by local consultancy Management & Fit, taken before the ongoing protests started, showed Fernandez's popularity at 31 percent and her disapproval rating at 58 percent.

She started 2013 with a popularity rating of about 50 percent and 45 percent disapproval.

An exporter of soy, corn and wheat at a time of sky-rocketing global food demand, Argentina is also sitting atop major oil and gas resources.

International commodities companies would love to get in on the vast untapped Vaca Muerta shale field in Patagonia, but Argentina has had bad blood with investors since the country's 2002 default and its 2012 seizure of energy company YPF.

As falling central bank reserves weaken the local peso currency, governability could be called into question before Fernandez's second term is due to end in late 2015. Currently at $30.3 billion, dollar reserves fell 30 percent during 2013.

"Many of her closest allies are starting to abandon her, raising questions about the country's governability," said Walter Molano, emerging markets analyst at U.S.-based BCP Securities. "Her main task will be to keep the Argentine economy afloat long enough to pass the baton to her successor."

The field of candidates for the 2015 presidential race is wide open. Molano doubts Argentina's next leader will turn away from populism. He says governments have drained the country's commodities resources since the 1940s without putting money back into the sector. He expects that trend to continue past 2015.


Fernandez last month brought in left-leaning academic Axel Kicillof as economy minister. The choice shored up her support in the Campora, the organization of young socialists headed by her son Maximo Kirchner.

To balance the appointment she named Chaco Governor Jorge Capitanich, a practical political operator, as cabinet chief.

"In sum, it is a cabinet that shows she is very much in charge," Molano said. "This is key because Argentine presidents who show weakness rarely finish their terms in office."

In order to avert a deep economic crisis over the two years ahead, Fernandez has signaled willingness to slay several sacred cows enshrined during her first six years in power.

Her government is on its way to agreeing with the International Monetary Fund on a new inflation index. Since 2007, the IMF and others have criticized Fernandez's government for under-reporting consumer price increases.

Inflation has been around 25 percent for several years, according to private estimates, one of the highest rates in the world. The government clocks inflation at less than half that.

The IMF expects Argentina to debut revamped consumer price and gross domestic product indices by the end of March 2014.

Markets will pay close attention to any move by Fernandez to settle with holdout investors asking for 100 percent repayment on bonds the country defaulted on in 2002.

Argentina is fighting with holders of defaulted bonds who chose not to go along with restructurings in 2005 and 2010. The 93 percent of holders who participated in the restructurings got returns as low as 25 cents on the dollar.

A deal with the holdouts, long vilified by Fernandez as "vultures" for picking at the bones of Argentina's 2002 financial crisis, could help the country re-gain access to the global bond market.

Recent steps by Fernandez toward settling Argentina's debts with the Paris Club of government lenders would also be welcomed by investors chomping at the bit to exploit the Vaca Muerta (Dead Cow) shale formation.

Estimated to hold 661 billion barrels of oil and 1,181 trillion cubic feet of natural gas, the formation could be one of the biggest of its kind in the Western Hemisphere.

(Editing by Andrew Hay)