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The Kirchners, on a trip to get some air
La Nacion
September 08, 2008

Concern over financing

By Carlos Pagni

Over the next 2 weeks, Cristina and Nestor Kirchner are to tour the region. This is in no way a triumphant march. It is their first external appearance after the political crisis provoked by the farming sector crisis. This is why the agenda for their trip is that of a feeble government.

Each stop has its own difficulty. But it will be in Caracas and New York where they will talk about the most challenging issue facing the government during the next electoral year: the financing for their fiscal program.

The tour kicked off with the President's visit to Brasilia, where she is at the moment. Today will be the official meeting with Lula da Silva, to celebrate the fact that bilateral trade will be substituting local currencies for the dollar. But the real news is about other pressing issues. The Government will attempt to get the airplane manufacturers Embraer to lease 3 or 4 planes to Aerolineas Argentinas over the next 6 months. This is an ambitious request if the company's current delays in payment to pay for the planes leased from General Electric is borne in mind.

They will also seek for Brazil to keep up its help on the energy front and that its development bank finance new investments in the country. In exchange, it is possible that the President may flatter Lula with the tip off that Argentina will be adopting the Brazilian-Japanese operating system for digital TV. This is an area of frustration for the North Americans and European who were also after the business.

When Mrs de Kirchner returns, her husband will be on a plane to Quito where president Rafael Correa is hoping for the support of the leaders invited to a forum by the Carter Foundation: on the 28th of this month there will be the crucial referendum for the controversial reform of the Equatorian constitution. Will Correa insist on nominating Kirchner to be the executive secretary of the Union of South American Nations (Unasur)?. The ex-president's candidacy is up against irredeemable difficulties. The elections are on October 22 and voting must be unanimous. But Uruguay, Colombia and Peru refuse emphatically to be represented by him. Although he already knew this, or perhaps because he already did, Lula pronounced himself on Kirchner's side. Then he will wait for the candidacy of the Bolivian Pablo Solon to fall supported this is indeed unusual by Chile, as Michelle Bachelet will not be putting forward her ambassador in Buenos Aires, Luis Maira, as had been speculated. When the pitch is clear, Lula will decide whether it is convenient to propose a Brazilian.

The reasons why Kirchner's international launch is coming up against so many obstacles will be made clear in his visit to Caracas. The Argentine government depends increasingly on Hugo Ch vez, but Ch vez's position is closing in. The balance of power in the region has changed over the last year. Since the constitutional referendum for his unlimited reelection to Uribe's success in freeing Ingrid Betancourt, the Bolivarian emir has moved from one failure to another. And Evo Morales is administrating a country riven by a fracture that the last popular referendum widened. At the other end of the spectrum, Brazil is consolidating itself as a power, Uribe is floating on clouds of popularity and Peru has achieved investment grade status.

Kirchner, on the other hand, will be arriving in Caracas as the leader of a government that, together with the flexible export tariffs, buried the possibility of increasing taxes and can no longer issue new bonds, as another Bolivarian rate of 15% would be out of the question.

Their fiscal restrictions cannot be hidden. Next year they will have to meet commitments for USD 20 billion. Half of this could be covered by the primary surplus from the Treasury. But there are USD 10 billion without coverage. The government may manage to get the international organizations to refinance one billion of the 2 billion they expect to receive; it could also oblige banks and pension funds to reprogram the maturities on 2 billion: 4 billion are due for guaranteed loans. The Interior Ministry could also get half of the amount collected by the pension funds, USD 1.7 million by placing a new bond. There are still 5.3 billion to find.

This calculation presupposes that the main backbone of the fiscal structure, the international price of soy beans will not continue to keep falling. The fall that began to be noted in the price of commodities is the great unknown of the international economy. If it gets worse, the main ally that the Kirchners have had to build their castle of power will have disappeared.

The average price this year was USD 480 per ton. But the last price quote on the market was USD 435. The whole equation is collapsing, the more the soy bean falls, the closer the default, it becomes harder to pay off the subsidies and there will be a need to increase tariffs. Kirchner needs to convince Chavez to buy bonds in 2009, or at least 2 billion dollars' worth, and that, instead of selling them on, to keep them. In other words, to commit Venezuelan fiscal reserves in Argentina.

But Chavez is also no longer what he was. Oil prices are dropping, just like the soy bean. Also in Venezuela, the official party could lose several of the governors when they come up for election in November. The Bolivarian leader is on the campaign trail and does not want to appear isolated. That is why he pressured the Argentine Foreign Office to ensure that the president make a stop off in Caracas on her way to New York. The photograph which Ch vez is seeking could not be more ill-timed: it will be taken while the Antonini Valisegate case is being heard in Miami.

All of these facts should be enough for the directors of Techint to understand that the Casa Rosada is not available to act as a shield in the face of Chavez' hostilities, not just in Sidor, but across all the companies belonging to the group in Venezuela. In Caracas, the Kirchners may only smile and keep quiet. Even if a scandal were to break out over the agreement signed on August 7 2007 by the National Technology Institute (INTI) with a corporation of Venezuelan small business for which the Argentine Pharmacy San Javier - which belongs to a contributor to Cristina's campaign, had the murdered businessman Sebasti n Forza as a sleeping partner and is under suspicion for irregularities in receiving subsidies will contribute to the development of Bolivarian biology.

These complicities are not the best baggage with which to enter the US. Particularly when the President pronounced, as she did last Friday that she was facing "the great challenge of returning to the capital markets" and "putting Argentina back in the world". Two objectives which the Kirchners have taken 5 years to figure out and which they did not take into account when they restructured the debt 3 years ago.

Such a vocation surfaced at the worst possible time when external credit became indispensable and a storm is shaking the international financial markets. It will be necessary to keep an eye on the proposal made by Barclays to reopen the 2005 swap. Particularly because the offer includes cash. A pressing detail for a Government who can no longer make the numbers add up.