The Kirchners' Survivability

(International Relations and Security Network, 05/09/2007)


It is no secret that Venezuelan President Hugo Chavez has spent billions to purchase Argentine bonds that he then resells to Venezuelan banks at high interest rates. Nor is it a secret that the Argentine government purchases fuel oil from Venezuelan energy giant PDVSA at inflated prices.

Money earned from fuel oil sales are then reinvested in Argentina. It is used specifically to purchase Argentine goods, enriching hand picked Argentine companies. Chavez makes money and Argentine President Nestor Kirchner gains the much-needed political support to keep his coalition strong and in power.


But when Argentine customs officials discovered nearly US$1 million in cash brought to Argentina by a Venezuelan businessman, the resulting "suitcase" scandal threatened to disrupt relations.

Some observers thought it would also affect the presidential campaign of Cristina Fernandez de Kirchner, senator and wife of President Kirchner. So far, neither has happened, leaving some international observers puzzled over the true nature of Chavez's relationship with the Kirchners and their commitment to improving Argentina's economy.


Although shady financial deals at home and abroad may prove to be damaging, there is little, if any, evidence of direct manipulation save a recent shake up at the organization that measures Argentina's inflationary growth.


When Kirchner sacked the head of Argentina's National Statistics Institute (INDEC) in February to replace him with Alejandro Barrios, a political appointee, INDEC employees and mid-level managers protested against the loss of the organization's independence from the government. Such independence is generally considered fundamental given the destructive long-term effects of manipulating inflation data to maintain a positive political footing.


Not six months later, in July, members of the INDEC sent an official letter to a Buenos Aires judge stating that they would not be held responsible for the organization's monthly publication of the official consumer price index data - a fundamental measure of inflation. Barrios, resigned just weeks after.


Allegations that Barrios had changed some of the parameters used to measure the CPI to make the results less politically damaging seem to have been confirmed by his resignation.


Nevertheless, it would be a surprise upset if Cristina Kirchner did not win the 28 October presidential elections. Various polls have placed her well ahead of the pack, and what many consider a fractionalized opposition has little to offer for a national-level united front.


But what the opposition cannot do to derail the Kirchners might be done in due time by the Argentine economy. According to The Economist magazine and other economics observers, international investors are no longer confident that the Argentine government's reported inflation numbers are accurate.


The resulting lack of international investment may be made up in the short term by Chavez's largesse and promises to purchase another US$1billion worth of Argentine bonds before the end of the year. But the long-term outlook is not favorable. It is a future that Cristina Kirchner will very likely face.


Her position as a politician more interested in fostering relationships on the international level may lead Argentina away from its relatively isolationist position, but given the fact that she shares her husband's political views, it is likely she will not make any progressive steps to thaw relations between Washington and Buenos Aires, but instead will maintain close ties with Venezuela.


The future of Argentina under Cristina Kirchner will not differ much from the past under her husband. Accurate predictions cannot be made about the Argentine economy, although many agree that strong growth in the long term is doubtful. Most important, however, is that Argentine voters are content to maintain what they see as the status quo. Under President Kirchner, life has improved since the Argentine economy imploded in 2001, making him a savior - and that's what matters.


The Kirchners can manipulate the economy, engage in shady deals with Chavez, snub the US and be blamed for a long list of items that range from an energy crisis to meat shortages. But as long as the Kirchners prevent Argentina from returning to 2001, they will likely remain in office. The bet is if they can hold off another economic crisis before their collective time in office runs out.