Populist Policies Pose Risks
President Cristina Fernández, who will stand for a second term as the candidate of the FPV faction of the Justicialist Party (PJ) on October 23, won 50.2% of all votes cast in a nationwide open-primary election held in mid-August.
Fernández can win re-election in the first round of voting with 45% of the vote in October, and she can avoid a run-off contest with just 40% of the vote if she finishes more than 10 percentage points ahead of the second-place finisher. The runner-up in the primary election won barely more than 12% of the vote. On that basis, the incumbent is heavily favored to secure another four-year term, most likely without need for a second round of voting.
The president has made clear that she views another term as an opportunity to deepen the interventionist approach to economic management that is the chief legacy of her late husband, Nestor Kirchner, the former president and founder of the FPV who died after suffering a heart attack in late October 2010.
The government’s unorthodox policy approach has produced strong growth and shrinking unemployment, but the expansionary Kirchnerist model cannot be sustained indefinitely, especially as the periodic resort to populist demagoguery has created an obstacle to attracting the foreign investment that might provide the government with a reliable source of non-debt financing.
Fernández has given no indication that she intends to address these risks, and she faces no strong immediate pressure to do so, as real GDP growth is forecast to top 7% this year. However, the poor outlook for the global economy points to a heightened risk of fiscal instability as the president begins a second term in 2012.
SUMMARY OF 18-MONTH FORECAST
|REGIMES & PROBABILITIES||Fernández Majority 65%||Divided Government 25%||Reformist PJ 10%|
|Turmoil||Moderate||Same||SLIGHTLY MORE||SLIGHTLY MORE|
|Equity||Moderate||SLIGHTLY MORE||SLIGHTLY MORE||Same|
|Operations||High||SLIGHTLY MORE||Same||SLIGHTLY LESS|
|Taxation||Moderate||SLIGHTLY MORE||Same||SLIGHTLY MORE|
|Exchange||Moderate||SLIGHTLY MORE||SLIGHTLY MORE||Same|
|Tariffs||Moderate||SLIGHTLY MORE||SLIGHTLY MORE||Same|
|Other Barriers||High||SLIGHTLY MORE||SLIGHTLY MORE||Same|
|Payment Delays||Moderate||SLIGHTLY MORE||SLIGHTLY MORE||SLIGHTLY MORE|
|Expansion||Moderate||SLIGHTLY MORE||SLIGHTLY MORE||Same|
|Labor Costs||Moderate||SLIGHTLY MORE||SLIGHTLY MORE||Same|
|Foreign Debt||Very High||Same||SLIGHTLY MORE||SLIGHTLY LESS|
SUMMARY OF FIVE-YEAR FORECAST
REGIMES & PROBABILITIES
|Divided Government 50%||FPV-led Coalition 35%||Reformist PJ 15%|
|Turmoil||Moderate||SLIGHTLY MORE||Same||SLIGHTLY MORE|
|Domestic||Moderate||SLIGHTLY MORE||MORE||SLIGHTLY MORE|
|International||High||Same||SLIGHTLY MORE||SLIGHTLY LESS|
|* When present, indicates forecast of a new regime|
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