Kirchner: Making new friends
After being regarded as the scourge of the international financial community when he completed the largest-ever sovereign debt restructure—a more than $100 billion deal with somewhat draconian haircuts—Argentine president Nestor Kirchner is redeeming himself. Investors can hardly ignore Argentina’s recovery, with GDP expanding by 9.1% in 2005—the fastest growth rate in 13 years.
Last year marked the third consecutive year of growth above 8%, following a four-year recession unleashed by the 2001 $95 billion debt default that produced a 10.9% GDP contraction in 2002. Last year’s strong showing was fueled by a 21% increase in government spending, an average 20.3% wage hike that sparked domestic demand, and record exports of $40 billion (versus $26 billion in 2002). The economy is expected to expand by 6.5% in 2006.
In fact, some analysts are concerned that the economy is perhaps
overheating. Inflation remains worrisome, hitting 12.3% last December—the highest jump since May 2003—and 12.1% in January 2006, compared with 7.2% a year earlier. While economists argue that increased investments will serve to thwart inflation, which should end the year closer to 10%, economy minister Felisa Miceli has negotiated temporary price controls with key retailers.
Kirchner, one of the leaders of Latin America’s “pink tide” of left-leaning regimes, was happy to rid Argentina of IMF controls by prepaying its $9.8 billion debt to the multilateral. The former three-term governor of Santa Cruz province is also proud of the drop in unemployment from a peak of 25% in 2002 to 10% in January this year. He hopes to bring joblessness below 10% next year. He reports poverty rates also fell to 34% in 2005 from 57.5% when he took office in May 2003.
So far, his compatriots are standing firmly behind their leader. Recent polls show Kirchner enjoyed a 75% approval rating in February, making him one of Latin America’s most popular leaders. He now needs to get investors back onto his bandwagon.