Cristina Fernández 2011: She will, she won’t, she will!
President Cristina Fernández de Kirchner said Tuesday she’ll seek reelection in October’s presidential election.
The announcement makes it likely that by the next presidential election in 2015, Argentina will have been governed nonstop for twelve years by one or another Kirchner.
Cristina’s husband and predecessor, Nestor Kirchner, took office in May 2003. Many had initially expected him, not Fernández, to run in 2011. That would have allowed the dynamic duo to remain in power perpetually by rotating through the presidency.
But an unexpected heart attack killed those plans, and Kirchner himself, last October.
I met him only once. But by most accounts, Kirchner was the ideas-man behind both his first term and Cristina’s. It’s unclear how her second term might differ from her first if she’s elected.
Whatever the case, some things are likely to change given a series of economic challenges that didn’t exist when Cristina took power in December 2007. She faces a major test in handling inflation that virtually all economists say surpasses 20% annually. She also faces a currency whose value in real terms is appreciating at the rate of around 15% annually, making Argentine companies and their products less competitive abroad.
How will she deal with such issues? True to her style, she hasn’t said.
Alberto Fernández, who is unrelated to the president and was her first cabinet chief, said Tuesday he expects the next four years to be “difficult.”
Time will tell. Critics have been discounting the Kirchners from day one.
The Argentina peso appreciating 15% against which currency? Certainly not against the USD! The peso has depreciated against the USD from 3:1 in 2008 to 4:1 now.
Hi David,
Excellent question. This is what I referred to when I said the peso is appreciating “in real terms.” At face value, or in “nominal terms,” the peso has done nothing but depreciate over the period you mentioned. But that simple equation measures only part of the peso’s value. It doesn’t accurately weight its full worth. That’s why even though you get four pesos to the dollar now, that dollar actually buys you less now, in most cases, than it did in 2008.
One of the hidden costs of inflation is the change “in real terms” that it imposes on the value of a currency. So while the Central Bank actively lets the peso depreciate at a rate of, say, 5% annually, inflation, which totals, say, 20% (or higher), acts as a counterbalance. That leads the so-called real value of the peso to appreciate.
Make sense? If not, here’s a brief definition of nominal versus real terms via Investopedia:
http://www.investopedia.com/terms/n/nominal.asp#axzz1Q0af8pHA
One thing that has benefited Argentina and helped keep it relatively competitive is that the peso is basically pegged to the U.S. dollar, which itself has been depreciating notably since the global financial crisis. That makes U.S. goods and services abroad more competitive. Since the peso is basically tied to the dollar, it also helps Argentine goods remain somewhat more competitive compared with goods from other countries.
Still, the pesos’s inflation-induced “real” appreciation is hurting Argentine exporters and leading many manufacturers to worry about the future. Lots of exporters are starting to get nervous, saying they’re having trouble selling their goods abroad. And they’re concerned about the future of Argentina’s “economic model,” saying it’s no longer helping local companies to remain competitive.
This is one way that inflation is becoming, or already is, a serious problem.
Hope this helps.
Saludos!
Taos
Taos, cracking explanation! keep up the good work and articles! well done! John
My friend Taos,
I think you’ve got it all wrong. The huge inflation rate in Argentina, some 20-30% per year, is caused by the debasement of the peso. Inflation is a hidden tax on the poor and the middle class, because the rich and super rich always have more zeros under their mattresses to pay for the extra costs of day to day living. The fact that inflation rate is so high does not mean the peso is appreciating in value, i.e., that it can buy more goods and services. On the contrary, the huge inflation is making the peso less in worth as it no longer can buy what it did 2-3 years ago.
You should read my article called “currency wars for dummies” to get a full understanding of the cause and effect of monetary inflation and price inflation:
http://www.rense.com/Currency%20Wars%20For%20Dummies.pdf
Saludos,
DaVid
Hi David,
I think we’re looking at two sides of the same coin here, neither being mutually exclusive.
Saludos,
Taos
[...] June 21, Argentine President Cristina Fernández de Kirchner announced she will run for reelection. The Argentine Post looks at the challenges she will have to deal with if reelected; Eliot Brockner, in Latin American [...]
As usual in Argentine politics, the incumbent declares (in Cristina’s case tearfully) that he/she will sacrifice their private lives because they have heard the voice of the “people”. In any event, I believe that those surrounding Cristina are the ones gloating over another atrocious and corrupt period in which they will be able to count their millions far more than Cristina herself who was most likely pressured into accepting by these same scoundrels.
Interesting but not surprising. I never doubted she would. She also stated a year or two ago that “God wanted her to be President of Argentina” (as if he did not have any more pressing issues to contemplate). I agree with Pete’s assessment except I believe she is ALSO greedy, corrupt and confrontational in her own right. I am sure my comments will offend someone who will find them offensive.
Good explanation Taos. My mother-in-law is visiting from San Juan. She paid 8000 pesos for a 32″ LCD recently. The same TV here costs $600 Can., that must be the result of a real depreciation of the currency. Remember that the depreciation of the U.S. dollar although it helps exports increases the cost of imports and if the peso is linked to the dollar this will drive inflation higher.
Just got it from Spain.
If Kristl is not winning her next re-election , still her team, her people will remain in power anyway.
An that will bring a confrontation, civil war or something.
I just hope this is all not true