Fernandez Tries To "Buy" Midterm Elections

It is remarkable to watch how some repressive governments attempt to address their nations' problems by temporarily plugging economic holes with populist programs (some may argue this applies to the developed world as well). Argentina is a great example, as Fernandez implements unsustainable policies just to get through the next election in October. She needs to keep the poor in her camp in order to retain control of Congress. One effort involves government sponsored grocery stores that will provide food priced below cost in order to keep the poor subdued through October.

Reuters: The so-called "Argentine Market" was organized by pro-government activists, workers' cooperatives and local entrepreneurs who claim to cut out "parasitic" middlemen. They opened a first outlet last month and plan to expand in May.

The market is just one of many palliative measures and quick fixes being taken by President Cristina Fernandez and her supporters to hold Latin America's No. 3 economy together, and keep Argentine consumers as happy as possible ahead of mid-term elections in October.

Other unsustainable programs include temporary caps on fuel and credit card rates. All are focused on getting through the October election.

Reuters: Officials also capped fuel prices for the six months to October and a government proposal to launch a new, cheap alternative credit card pushed banks into offering discounts and lowering the interest rates they charge on credit card debt.

Deeper economic distortions continue to plague businesses, however, especially the small- and medium-sized companies responsible for about 40 percent of Argentina's gross domestic product. Several economists recently lowered their GDP forecasts for this year, with some now seeing just 1 percent growth or so.

Rising government spending ahead of the elections is pressuring government finances. For a nation that will have an increasingly difficult time borrowing even domestically, this is troubling news.



In the mean time Argentina's private sector fundamentals continue to deteriorate, forcing people to keep buying dollars.

Reuters: - One Argentine who owns a real estate company, and who declined to speak on the record because he fears retribution for admitting he buys dollars illegally, complained Fernandez is relying on "short-term patches that are going to explode in the government's hands."

The man took out a loan in dollars in 2011 to finance a private housing development. That debt has more than doubled since the government virtually banned foreign currency purchases and the black-market price for dollars surged.

Any remaining confidence in the value of the peso is disappearing quickly, with the underground demand for dollars skyrocketing. According to JPMorgan, this week "the informal FX rate was dealt at USD/ARS 9.45 (90% above the official fixing - 5.20), a historical high." The situation in Argentina is clearly unsustainable and it doesn't take an economist to realize it's not going to end well.