Argentine President Cristina Fernandez de Kirchner’s efforts to stem capital outflows and extend her control over South America’s second-largest economy has brought growth to a standstill.
Gross domestic product was unchanged in the second quarter from a year earlier and shrank 0.8 percent from the first quarter, the national statistics agency reported today. Economists had forecast year-on-year growth of 0.5 percent, according to the median estimate of 10 economists surveyed by Bloomberg. This was the first time GDP hasn’t grown annually since a 0.3 percent contraction in the third quarter of 2009.
“The government’s policies have halted growth because they led to lack of confidence and of investments,” said Walter Molano, head of sovereign research for emerging markets at BCP Securities in Greenwich, Connecticut, an investment bank that focuses on developing nations. “Argentina could have easily continued growing 7 percent or 8 percent for years.”
Since her re-election in October, Fernandez, 59, has banned most purchases of foreign currency, restricted imports and nationalized YPF SA (YPF), the country’s biggest oil producer. While those policies have eroded business confidence and investment, a drought in the U.S. that has pushed up soybean prices may provide some relief for the world’s third-largest producer of the oilseed.
Budget Forecasts
Argentina, which has expanded an average 7.8 percent a year since 2003, will grow 2.5 percent in 2012 and as much as 5 percent next year, Molano said. Fernandez’s government forecasts growth will accelerate to 4.4 percent in 2013 from 3.4 percent in 2012, according to the 2013 budget.
The Argentine government has defended its record and says growth will rebound.
“The engines of economic growth next year will be a boost in domestic consumption and in investment,” Economy Minister Hernan Lorenzino told lawmakers when he presented the 2013 budget yesterday. “Argentina’s economy continues growing in an international economic context in which some important regions in the world are in recession.”
Emerging-market stocks rose, paring the first weekly decline this month, as gains in commodities lifted producers and investors speculated losses were excessive given central bank stimulus measures.
Emerging Markets
The MSCI Emerging Markets Index rose 0.8 percent to 1,006.40 at 4:03 p.m. in New York, trimming this week’s loss to 0.8 percent. India’s benchmark gauge jumped to a one-year high and the rupee rallied the most among major currencies on tax cuts that added to policy reforms last week.
In the U.K., the government posted its biggest August budget deficit on record, heaping pressure on Chancellor of the exchequer George Osborne as the recession hits tax revenue and pushes up spending on welfare.
Argentina’s Fernandez tightened import restrictions in February to boost the country’s narrowing trade surplus and bolster central bank reserves. With Argentina locked out of global credit markets since its $95 billion default in 2001, Fernandez has tapped the bank’s holdings since 2010 to help pay the nation’s foreign debt. She plans to use $8 billion of reserves for the same purpose next year.
The import restrictions led to shortages of foreign-made parts, forcing manufacturers such as Fiat Spa (F)’s local unit to trim production. Fernandez also tightened controls on dollar purchases in a bid to slow capital outflows, which accelerated to $21.5 billion in 2011 from $11.4 billion the previous year.
Kirchner Remembered
In April, Fernandez, who succeeded her late husband Nestor Kirchner in December 2007, seized control of YPF from Spain’s Repsol SA, blaming lack of investment by her country’s biggest oil company for a doubling of fuel imports in 2011. During her first term, she expropriated $24 billion of private pension savings and nationalized Aerolineas Argentinas SA, the nation’s flagship airline.Since Kirchner’s death in October 2010, Fernandez has always worn black at public appearances and often cries when she refers to him in her speeches. Governors and lawmakers who support her have named avenues, public squares and a soccer championship after Kirchner.
The slowing economy has prompted Argentines to curb purchases, according to Juan Dumas, head of the country’s shoe manufacturers association.
“We are facing the slowest growth of the past four years as consumers have become more cautious about spending,” Dumas said in a telephone interview from Buenos Aires. “The country’s economy is facing a freeze that we haven’t seen in previous years.”
Shoe Sales
Sales by the shoe industry will grow 10 percent this year after expanding 14 percent in 2011, Dumas said.
A drought that reduced corn and soybean harvests, two of the country’s biggest exports, and a slowdown in demand from Brazil, its main trade partner, also undermined the expansion.
Posted By: Shawn Huyck
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