Subject: G. BREUER October 2010 Newsletter.
From: <[email-masked]>
To: "Info Gbreuer" <[email-masked]>
Date: Mon, 1 Nov 2010 14:45:08 -0300

G. Breuer's Newsletter
October 2010
Dear Clients & Friends, 
We are sending to you the monthly edition of our Newsletter, where you will find an update on:
Political News
Economy News
G. Breuer News

Please do not hesitate to contact partners Jorge Otamendi and Diego Fissore for any specific question you may have after reading the news below, or for any other issue you may need advice on.
Best regards,

G. Breuer
25 de Mayo 460
Buenos Aires - Argentina
Tel: +54 11 4313 8100
Fax: +54 11 4313 8180
www.gbreuer.com.ar
Political News
Sometimes we wait to issue this report when important political news is expected to come out. But this time, our waiting made that just the day in which we would issue our report, something happened that would have made us delete all what we had written, since everything may change from now on. 

That fact was the demise of Néstor Kirchner, the person that undoubtedly held the political power in Argentina for the last seven years. Mr. Kirchner was said to be the power behind the power, and sometimes not that much behind. And his support was essential to his wife’s Administration, since he was said to manage the political relationships with the official party, which he headed, the Governors and the key unions. He was said to run the economy also. 

Thus, his loss will be deeply felt in the official party, since all political groups mainly responded to him, and it is unclear how his wife, the current President, will react. Mrs. Kirchner not only has to mourn the death of a husband, but also has to do it being the president of a country just when matters are starting to become more complicated in the sense that inflation is showing signs of acceleration, the  Argentine unions are starting to raise stakes in protests, divisions among workers are appearing, and when there is an election in a year time. 

Then, all are expectations in the current Argentina.  We will have to wait to see where things go.

Other than the event we just described, this past month had several important political news. 

A young activist belonging to a left wing party (Workers’ Party) was shot dead after a demonstration in a railway station. Allegedly, unionists were linked with the rail-workers union organization. This death, which is not the first in clashes among different factions of union workers, made that the relationships between this Administration and the Argentine unions be put on center stage again. 

The investigations on the death of the militant are currently taking place. Certainly, this issue may not be good news to the current Administration and some of its officers, as much as to other political figures of the country.

Also of importance is that, according to those polls, either the President or Mr. Kirchner would be increasing their positive reviews and their chances to win next years’ elections are on the rise.  Now, due to Mr. Kirchner’s death, the candidate on the official party’s ticket may change and the effect of Mr. Kirchner’s death will have to be weighted.

In addition, nothing is sure on this front since the candidates from the opposition are not defined and no real campaign has started yet. 

This month there were certain verbal skirmishes between the Kirchner Administration and the Supreme Court. The highest tribunal in the country had to issue several rulings on key issues such as the appeals on certain precautionary measures in favor of the Clarín Media Group, the replacement of a prosecutor in the Province of Santa Cruz, and the decision related to the extradition of an alleged terrorist from Chile. 

Several important officials of this Administration, including Mrs. Kirchnner herself, issued direct statements placing the Supreme Court in an uncomfortable position, and there was a demonstration by official party members to support the Media Law (a key article of such law was the subject matter of the appeals being considered by the Supreme Court) in front of the seat of the highest tribunal, where rude and harsh statements were issued, including remarks against the honesty of some judges.

The intention to pressure the Supreme Court seemed to be very clear. In all three cases mentioned before, the Supreme Court issued judgments that could be considered against the interests of the current Administration, and its relation with the Judiciary and the Supreme Court in particular became very tense, and it still is. 

The Supreme Court is really showing independence. We note that it was reported that the EP cut the Supreme Court’s budget for 2011 by almost 40%, while the budget for the Council of Magistrates was reduced by 12%.

On another front, opposition in Congress managed for the first time to pass a draft legislation against the official party’s votes. Such draft legislation was aimed at increasing minimum retirement payments to the amount equal to 82% of the minimum wage, which would imply an increase from 1,046 to 1,427 pesos to benefit about 4.7 million pensioners.

As it happened in 2008, the draft legislation approved in the House had a very tight vote and the Vice President had to break the tie and the law was approved. Shortly after that, President Fernández de Kirchner announced the veto to such piece by saying that it would lead Argentina to a very difficult financial position, risking bankruptcy, and heavily criticized the opposition. 

Regarding this issue, it seems that neither the official party nor the opposition parties were able to explain their points as to the feasibility (or lack thereof) of the retirement payments increase and the alternatives to finance it.  There seems to be no clear political solution to this problem.  

We mention that the draft budget law for 2011 is being discussed in Congress and it is unclear whether there would be agreement on it. The opposition, all of it but mainly the Radical Party, is claiming that the figures provided for in such law need serious corrections (expected GDP Growth, inflation, US$ / $peso exchange rate) and that such piece is another example of underestimation of growth and income so as to be able to distribute it at will through superpowers and decrees. The opposition requests the end of superpowers and that emergency decrees are regulated to provide Congress with real review power on them.
It is uncertain what will happen on this front also, but it is likely that the opposition and the official party will not reach an agreement and, as a consequence, this Administration will extend the 2010 Draft Law for 2011, which will place on it substantive discretion.
We mention draft legislation that may create political controversy in the coming months. First, there is a draft law sponsored by the main union organization, which provides for profit sharing with companies with more than 300 employees. This piece is resisted by the main industrial unions of the country. 

As we said above, the demise of the strong man in the official party will cause all of the precedent issues to be re-analyzed now that the official party starts to walk without its main decision maker.  All or little may change. At this point, there are uncertainties and different opinions. As said before, we will have to wait.

Top
Economy News
Inflation continues to be a concern. The inflation rate in September 2010 was calculated by INDEC as 0.7%, fueled by increases in the leisure and education sectors. Private firms calculate that the IPC increase went from 1.6% to 1.8%, mainly fueled by increases in clothing items and food & beverages. Inflation for the first 9 months of 2010, according to INDEC, was 8.3%, while according to private estimators it was around 18.1%.
Also, the Central Bank is finding it very difficult to maintain the dollar price due to the good winds of the Argentine securities and commodities’ prices. The high inflow of US Dollars makes that the BCRA has to purchase those US Dollars issuing pesos and then it tries to neutralize those $ pesos (to not foster inflation) by placing debt in the market (Lebacs and Nobacs) yielding a 13% interest rate (in average). Such fact makes it dubious that the use of Central Bank reserves to pay debt is less expensive than issuing debt in the international markets. 
On the debt front, we note that it was reported to Congress that the country’s debt totaled some US$ 156 billion by June 30. This represents 48% of the gross domestic product, down from 74% in 2005. 35.4% of debt is in the hands of private creditors. 
According to official data, the Central Bank currently has US$ 51.2 billion in reserves, while at the beginning of 2010 it had US$ 47.5 billion.
Also, due to the decision of Argentina of not being audited by the IMF, as members of the Paris Club requested, the negotiations with the Paris Club seem to be in a gridlock, and Argentina continues to think of alternatives to solve that issue. The Paris Club debt issue seems to advance very little, if at all. 
As to economic activity, we mention that the IMF forecasts an economic growth of 7.5% for 2010, but it included a footnote saying that Argentine official figures differ from the private firms’ calculations. 
The Argentine Industrial Union’s Study Center reported that in August 2010, the industrial activity grew importantly. Car industry showed to be one of the most dynamic sectors. The food and beverage industries also showed a solid recovery.
According to some private consultants, industrial production grew 7.7% year-on-year in September 2010, while comparing it with August the growth was 2.5%. The sectors that led the inter-annual hike were: cars (49.6%), metal & steel (27.7%), mechanics (11.7%) and textile (9.8%).
And, according to INDEC, Argentina’s gross domestic product grew 11.8% in the second quarter, (annually compared) and investments increased 18.9%. 

Mr. Kirchner’s death may place question marks on the course of the economy, since he was said to be the main decision maker in economic matters. We will report about it next month
Top
G. Breuer News
For more information, you may read the October edition of our Boletín Informativo, sent to our Argentine clients & friends. 
Top
G. Breuer
25 de Mayo 460
Buenos Aires - Argentina
Tel: +54 11 4313 8100
Fax: +54 11 4313 8180
www.gbreuer.com.ar

Please note that the information given in this bulletin is for general purposes only and does not intend to provide comprehensive legal advice on any issue.
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© G. Breuer, 2010.

G. BREUER
Tel: 54-11 4313-8100
Fax: 54-11 4313-8180
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