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Argentina Political Risks Rise On Bid To Change Election Date Article
Dow Jones Newswires
March 16, 2009

By Michael Casey and Taos Turner of DOW JONES NEWSWIRES

BUENOS AIRES (Dow Jones)--The Argentine government's surprise bid to move up this year's parliamentary elections is emerging as a risky gambit that puts its political future and the country's economy on the line.

When President Cristina Fernandez announced she would ask Congress to move the congressional elections to June 28, four months ahead of schedule, she said that it was to the country's benefit to confront its economic crisis with a shortened, less-distracting political campaign. But it was widely seen as a Machiavellian move to avoid political fallout from the deteriorating economy and drive a wedge into an already divided opposition.

Still, with opinions turning increasingly negative toward the government amid a drastic downturn in economic activity, the maneuver could backfire.

In particular, Nestor Kirchner, Fernandez's husband and predecessor, is in a bind. Kirchner, universally regarded as the real power behind the president and - ironically - the mastermind behind the date change, has been strongly hinting at a run for a key lower house seat representing the province of Buenos Aires, the country's biggest. Friday's news of the date change seemed to raise the prospect of a near-term announcement of his candidacy.

Yet polls show support for a Kirchner candidacy falling sharply. Already, a big loss in regional elections in Catamarca province for Kirchner-allied candidates has been a blow to the ex-president. But the pivotally important province of Buenos Aires is a far bigger deal.

Having built up expectations, Kirchner would have a hard time backing down, even if polls end up suggesting it would be wise for him to withdraw, says pollster Jorge Giacobbe, because "people would assume he was too weak to run."

"But if he runs and loses, not only does the government lose but its supporters lose their maximum leader," Giacobbe said. "They end up without a voice. He can't afford the risk of running in June if he wants to be president in 2011. I don't think he will run."

Yet the shortened campaign carries risks for the opposition too, forcing its brightest hopes within the critical Buenos Aires legislative block and other key provinces to scramble to unite effectively. As with the presidential elections in 2007, a divided opposition could help the incumbent, regardless of popularity.

The loose coalitions that already have been formed were looking like marriages of convenience. These include a key tie-up among center-right lawmaker Francisco de Narvaez, Buenos Aires City Mayor Mauricio Macri, and Felipe Sola, a former Kirchner-allied Buenos Aires governor who is now a high-profile opposition deputy in the lower house.

The date change threw them for a loop. Macri at first felt compelled to support the government's announcement, despite its dubious democratic nature, since he himself had announced a similar move for the city's legislative elections. For his part, Sola attacked the government for messing with the constitution, while de Narvaez initially welcomed the new date with bring-it-on bravado. On Monday, the trio patched up their differences, however, with Sola and de Narvaez both saying they'd vote against the date change when the bill comes before Congress in the next few days.

Notwithstanding their and others' 'no' votes, the Kirchner-allied majority in both houses of Congress is expected to approve the change. In so doing, it likely will further fire up political tensions that lately have been stoked by the government's battle with the farm sector and by rising concerns about crime.

Against such a backdrop, few see the government emerging from the June 28 vote stronger than it is now, making governing difficult and leaving two policy imperatives prone to political risk: a solid fiscal surplus and an expected devaluation in the peso.

According to Credit Suisse analyst Carola Sandy, one reason earlier elections help the government's chances is that it can now "substantially increase spending in the near term to garner political support," before subsequently curbing it in the second half of the year. Optimistically, she sees this allowing a "reasonable fiscal result for the full year 2009."

But others worry that if confidence is rocked by intensified political clashes, then the blow to the economy - and thus to tax revenues - could put the government on shakier fiscal ground. If it has to spend big to retain support, the fiscal base and some big debt payments in the third quarter could be at risk.

"At first (the date change) looks like a wise decision to keep power because in three months we'll be in a tougher situation," said Jorge Triaca, the director of think tank Fundacion Pensar. "But that's not true because once you say you're moving the elections forward because of economic problems, it becomes a self-fulfilling prophecy. People who weren't worried about the economy now will be. Moving things forward seems very shortsighted."

Political tension would also work against an orderly depreciation in the hitherto closely managed Argentine peso. Although such a policy shift is seen as necessary to restore the competitiveness that was lost when Brazil's real nose-dived last quarter, it carries the political risk of provoking panic among savers.

Futures markets are betting that the electoral date change will speed up the devaluation, since it would no longer be dependent on the October vote. But as Gabriel Sanchez, an economist at consultancy Fundacion Mediterranea, notes, it isn't likely to be an easy move for the government even after June 28.

"No matter what, the Kirchner team is going to come out of the elections weaker," said Sanchez, who says that this points to a sharp, disorderly decline in the peso rather than a controlled, gradual depreciation. The result would eventually be the same, but it would have a far more negative impact on political stability and investor confidence.

"I get the sense that it's going to be very difficult to control the dollar after the elections," Sanchez said.

-By Michael Casey and Taos Turner, Dow Jones Newswires; michael.j.casey@dowjones.com; 54-11-4590 2428

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