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By Gary Regenstreif
As Argentina's Cristina Fernandez de Kirchner convalesces in the presidential residence after surgery, a poor prognosis for her political and economic agenda awaits her outside. Yet the populist leader is unlikely to respond with major policy initiatives as she enters a prolonged lame duck period.
Fernandez faces big losses in Sunday's mid-term congressional elections, which will likely determine how much legislative clout she can muster. Hope for her third presidential mandate is all but extinguished. Under her administration, Latin America's third largest economy is slipping further behind the region's top two — Brazil and Mexico — and looking ever more like the laggard Venezuela.
The 60-year-old Peronist leader was ordered to rest after an emergency operation to remove blood from the surface of her brain, sidelining her from the campaigning she led earlier to keep "Kirchnerismo" alive.
First elected in 2007, Fernandez implemented a raft of interventionist policies that have made her popular with the poor but no darling of business and investors: regulation of the critical grains sector, protectionist trade policies, currency controls and nationalization of the oil company and private pension system.
She had a glimpse of the unraveling of Kirchnerismo in August, when her candidates won just 26 percent of the vote in primaries. Opinion polls and analysts forecast that she'll likely lose ground in many key provinces on Sunday. And while she translated sympathy for her husband's death in 2010 into votes that reelected her a year later, Fernandez doesn't appear set to benefit from a similar bounce after her illness.
The complex mathematics of Sunday's elections makes more concrete projections difficult. But they are clear enough to forecast that she would not secure the two-thirds support of Congress needed to initiate a constitutional amendment required for her to seek a third term.
Rather than having her party rally around her, jockeying for the leadership has begun. The popular and market friendly Sergio Massa, a former ally who broke ranks, now heads a government faction of the umbrella Peronist party. Monday, the day after the vote, is likely to mark the beginning of the 2015 presidential race. Fernandez becomes a lame duck. And the end of Kirchernismo is in sight.
That prospect has cheered the markets. Argentina's Merval equity index has rallied by about 50 percent since the August 11 primaries that showed support for the ruling FPV (Frente Para la Victoria) dropping.
In the lengthy period from now until the 2015 presidential election, Fernandez must wrestle with economic blights that draw unwelcome parallels with Venezuela.
"The similarities of the economic models allows us to view the Venezuelan situation as a preview for what can happen in our country if a change in direction is not made," leading newspaper La Nacion, a critic of the administration, said in an editorial earlier this month, saying only "several degrees" separate the countries.
Indeed, these two South American countries, different in so many ways, are looking frighteningly similar in others. Fernandez, like former Venezuelan President Hugo Chavez, has put helping the poor at the top of her agenda. But generous welfare and other state subsidies have also caused prices to jump. Argentine inflation is 20 to 25 percent, according to estimates by independent analysts, far higher than the officially reported rate.
Fernandez has kept the official exchange rate at artificially strong levels — making imports cheaper but eroding the ability of manufacturers to compete internationally. Her government dipped into Argentina's foreign exchange reserves to pay for its energy needs and honor its debt. Those reserves are down 20 percent to $34.4 billion, their lowest since early 2007. To protect that bank of foreign funds, Fernandez has limited access to dollars, fueling a black market that charges nearly twice the official rate. A currency crisis could be looming.
She's also been embroiled in a legal battle against bond investors. They refused to participate in debt restructurings after the country's 2002 default and are suing for full repayment. The U.S. Supreme Court this month declined to hear an appeal filed by Argentina over its battle with the investors. Fernandez has vowed never to pay the holdouts, whom she calls "vultures" for picking over the bones of the default.
The Argentine economy is growing, but how fast is in dispute. While officials project gross domestic product will grow by 5 percent this year, up from 1.9 percent last year, many private analysts think that's optimistic. London-based Capital Economics, for example, recently told clients that that gross domestic product data is widely discredited and it estimates the economy fell into recession in 2012. While this year's rebound has been stronger than expected, it is largely due to temporary factors likely to fade in coming quarters. In addition, Capital highlighted Argentina's lack of attractiveness as an investment destination — it is the only major regional economy in which foreign direct investment as a share of GDP fell in the past decade.
Fernandez will likely seek to preserve the hallmarks of Kirchnerismo. With no appetite for a real change of course, however, she may only fiddle around the edges.
"It will be a policy of patches," Dante Sica, an economist and former industry, trade and mining minister before Nestor Kirchner took power, told me. "You can't expect big things. There will be some corrections, some marginal changes, some patches to allow it to continue but you won't see dynamic growth."
Fernandez will likely be tempted to return to policy tools she's wielded before, despite the inherent risks. The first may be the desire to tighten currency controls more, to stop the exodus of dollars and protect foreign reserves and her ability to pay the debt and energy imports. That would further frustrate businesses and consumers — and aggravate distortions in the economy. With $10 billion earmarked for debt repayment in 2014, dollar reserves are likely to be under greater pressure.
Another temptation may be to again dip into public institutions to finance spending, after siphoning funds from the central bank and from the pensions agency. A third will be to boost spending to prime the economy before the 2015 polls, further stoking inflation.
But Fernandez's falling support will limit her ability to push through new legislation. "She will continue doing what she's doing," said Mariel Fornoni, political analyst and managing partner of polling firm Management and Fit. "It's a government on the way out."
That won't help Argentina climb back toward regional powers Mexico and Brazil. Or further away from Venezuela.