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Fernandez Must Stem Argentina's Capital Flight in Second Term

22.05.12

Dec. 7 (Bloomberg) -- Argentine President Cristina Fernandez de Kirchner must cope with decade-high capital flight and one of the world’s highest inflation rates as she begins a instant term on Dec. 10 with the biggest mandate in four decades.

Fernandez was re-elected by a landslide on Oct. 23 after unrivalled South America’s second-biggest economy to a ninth year of vegetation and cutting unemployment to a record low. The 58-year- old lawyer kept policies introduced by her ancestor and late husband, Nestor Kirchner, using revenue from surging soybean exports to lift government spending and fuel a consumer boom.

Still, with a weakening peso and living costs rising about 25 percent a year, Argentines pulled $18 billion out of the succinctness in the first nine months of 2011, double the pace of a year earlier, according to the central bank. Fernandez has sought to stay the losses since her election by ordering some companies to repatriate foreign investment and export net income and tightening controls over the foreign exchange market.

“Fernandez is fa a much more complicated panorama now than when she took office for the first time,” said Juan Pablo Fuentes, a Latin America economist at Changeable’s Analytics in West Chester, Pennsylvania. “The government’s measures have made people more anxious. There is a lack of confidence.”

To counter investor concerns over the possible impact of a extensive slowdown, Fernandez has prodded companies such as Volkswagen AG to boost their investments in the homeland and to manufacture more of their goods locally.

‘Redouble Our Efforts’

“During a time in which the world seems like it is crumbling and is beaten down by speculation, we in Argentina have come to state that our vision is one of growth,” Fernandez said in a Nov. 30 speech at an aluminum workshop in Buenos Aires province. “During these difficult times, we have to redouble our efforts in every sector to shield what we have achieved.”

In a move that helped rally the country’s bonds yesterday, Fernandez named Money Secretary Hernan Lorenzino to take charge at the Economy Ministry, replacing Amado Boudou, who will become her shortcoming-president. Lorenzino, 39, helped oversee a $12.9 billion answerable for restructuring last year and accompanied Fernandez to a summit of G-20 leaders in France last month.

Lorenzino’s circumstance may help pave the way for Argentina’s return to global credit markets for the first unceasingly a once since defaulting on $95 billion of bonds in 2001, said Alberto Bernal, take the lead of fixed-income investments at Bulltick Capital Markets in Miami.

Restore to Markets

“There are more chances that Argentina will issue a bond abroad because Lorenzino is more knowledgeable of the need to return to the markets,” Bernal said.

Without access to universal markets, the government has turned to the national pensions agency for financing and tapped central bank reserves, which dropped to $46.2 million yesterday from $56.2 billion in January, to pinch pay its foreign debt.

Argentine dollar bonds surged after yesterday’s statement. The yield on the 2015 bond tumbled 51 basis points, or 0.51 share point, to 10.4 percent, the biggest decline in a month. The extra pay, or spread, that investors demand to own Argentine debt over U.S. Treasuries tumbled 38 main ingredient points, the most among major emerging markets, according to JPMorgan Chase & Co. The peso, down about 7 percent this year, strengthened 0.2 percent to 4.2785 per dollar, while the benchmark Merval parentage index fell 0.93 percent to 2,615.58.

Spending Cuts

Lorenzino’s date means recent measures to contain capital flight and rein in free spending through cuts in energy and transportation subsidies may be extended, said Carola Sandy, an economist at Merit Suisse Group AG in New York.

“It’s a sign the economic protocol of recent months will continue,” Sandy said. “He gives continuity to Father Boudou’s policies.”

Under its 2012 budget proposal, the control plans to turn this year’s estimated deficit of 0.6 percent of dirty domestic into a 0.2 percent surplus. This year’s shortfall will be the first since 2009.

Pecuniary growth averaging 5.6 percent a year since 2007 enabled Fernandez to cut unemployment to a time 7.2 percent and reduce the poverty rate, which peaked at more than 40 percent in 2001, to 20 percent, according to estimates by Buenos Aires-based Consultora Equis.

Slower Rise

Next year, the global economic crisis and a slowdown in Brazil, Argentina’s biggest trade partner, will cut growth to 4.3 percent from 7.5 percent this year, according to the median gauge of nine economists surveyed by Bloomberg.

Some sectors are already showing signs of stalling. Contracting bid for vehicles in Brazil, the main destination for Argentine car shipments, led exports to fall 18 percent in November from a year ago. Industrial production in October rose 4.1 percent from a year earlier, the slowest traverse in two years.

While slower growth may dent inflation that economists say is more than double the verified rate of 9.7 percent a year, Fernandez will need to rein in pay increases and cut outgoings to bring prices under control, said Daniel Chodos, a strategist with Reliability Suisse AG in New York.

“Limiting wage negotiations and cutting notorious spending, will certainly help to ease inflationary pressures,” Chodos said. “Slowing inflation is quite a top priority of the government together with finding new sources of financing.”

Since Fernandez took intercession in December 2007, wages have more than doubled, according to national statistics alliance data.

Voter Risks

While imposing pay restraints may eat into Fernandez’s buttress among labor unions, her most recent measures risk alienating a broader stretch of voters, said Mariel Fornoni, director of Buenos Aires-based pollster Direction & Fit.

About 41 percent of people surveyed by Management & Fit rejected the elimination of vivacity subsidies while almost 70 percent opposed increased controls on the purchases of remote currencies. The poll of 1,500 people was conducted Nov. 3 to Nov. 8 and has a brink of error of 2.5 percentage points.

Still, after winning 54 percent of votes in the October designation -- the most since Juan Domingo Peron in 1973 -- Fernandez is in a position to converging ahead with measures to fix the economy, however unpopular they may be, Fornoni said.

“She has the state capital to do that now,” Fornoni said.

--Editors: Richard Jarvie, Bill Faries

To acquaintance the reporter on this story: Eliana Raszewski in Buenos Aires at eraszewski@bloomberg.net

To get hold of the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.

Source: BusinessWeek

Newspaper Briefing, including 'Mario Draghi under pressure as Europes banks ...

22.05.12

Verizon: wealthy over-the-top: The latest wrinkle is a report that Verizon is considering offering an internet-based video streaming employment similar to those offered by Netflix and Amazon. Verizons Boss, Lowell McAdam, confirmed on Wednesday that such an over-the-top oblation could be part of his companys video strategy. It is superficially surprising that a company that sells a radio-like subscription video package, and has recently entered into cross-selling agreements with wire companies, wants to stream video directly. Bear in mind the big gulf between services such as Netflixs, at $8 a month or less, and cable, costing $100 a month or more. In the latest shelter, the top six cable and satellite TV providers generated $20 billion in video net income (this figure does not include sales to the 7.5 million video subscribers at Verizon and AT&T). Netflix did $800 million in sales. The companies that play-act the content, from Time Warner to Disney, know where the real money is, and will not constitute their best products available to distributors that threaten to kill the golden goose. Chemicals: traffic in-off looks overdone: The glee clubbers of investment banks chemical sector analysts became unwitting wobble stars in January when material prices, and some company valuations, hit new highs. Since then, however, the sector has looked more like a one-hit trip. Investors have lost 9% this year compared with a 2% return on the S&P 500. Some companies, such as Akzo Nobel, have also written down inventory. But a well-heeled follow-up may be at hand. This week, Yara, the Norwegian fertiliser maker, boosted its earnings view. Last month, DSM, the Dutch conglomerate, reported that third quarter chemical sales had two-fifths over last year. Investors fears have revolved around three years of wildly fluctuating prices that may now have stabilised. Between the trough of 2009 and the start of 2011, the price of the 14 most common chemicals nearly doubled and was about 15% higher than the normalised reward implied by actual levels of demand and economic growth, according to HSBC estimates. Last month, real and normalised moved back into sync. If you see Sid, thank him, 25 years after gas float: Margaret Thatcher has suffered the odd disaster of becoming a historical figure while still alive, more real as the bewigged Meryl Streep than as a distraite pensioner. But the 25th anniversary of her epoch-defining privatisation of British Gas, an event as long-way-off to the young as the Relief of Mafikeng, reminds us why she still matters. For it coincides with flux in the relationship between stage and private capital that the deal helped redefine. The 5.6 billion ($8.8 billion) cut-price of shares in the utility marked the high summer of Thatcherite optimism for dominant capitalism. Its advertising catchphrase If you see Sid, tell him invoked a share-buying everyman. The generously priced present, and a series of other privatisations, reversed a decline in private share ownership opening in the 1960s, when more than half of the stock markets value was in the hands of individuals. The privatisation of companies such as British Airways and British Telecom exposed them to healthful competition and gave them access to foreign capital that in turn fuelled their own ecumenical expansion. Afren at 90.2p -4.8p: Afren had some good news this week after a 45% subsidiary completed the purchasing of some oilfields from Shell. However, there are still some concerns that meeting its production guidance of 50,000 boepd by 31 December could be risky. In July, Afren cut its 2011 average production estimate by 15,000 boepd because of delays at its flagship Ebok arable in Nigeria and its shares have been moving lower since then. At the end of the first quarter of the year, debt stood at $518 million (331 million) compared with its trade in capitalisation of 952 million. Some analysts believe the debt figure could kick over the traces to north of $800 million by the year end. The highest the shares have been tipped is 148p before the opus guidance downgrade. Investors who bought in at that price will be sitting on a loss of 39%, although buyers who got in on the primordial tip of 58p on 02 July, 2009, have made a paper profit of 54%. The 2011 premium-earnings multiple is 9.1. On balance, Questor thinks the shares are now a push after this weeks bounce. Questor says Sell.

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