Subject: G. BREUER Monthly Newsletter: November 2010
From: <[email-masked]>
To: "Info Gbreuer" <[email-masked]>
Date: Wed, 1 Dec 2010 15:00:40 -0300

G. Breuer's Newsletter
November 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
We start by saying that this month was a very unusual one, since there were plenty of expectations as to what the political effects of Mr. Kirchner’s demise would be. Mrs. Kirchner went back to work on November 1st resuming a regular agenda. 

There were speculations of different sorts as to what may happen in Argentina after this important event, since Argentina is a country that likes strong leadership. We have to say that no significant changes were seen in the Government itself, although there are some style changes that are too early to tell whether they are significant or not. More time is needed in this respect, since the current signs are still not enough to detect any significant change. 

However, the departure of Mr. Kirchner had a significant effect both on the official party and on opposition parties, since Mr. Kirchner himself was said to be the next official candidate for the presidency, and now that place is allegedly vacant although Mrs. Kirchner is very likely to take the place and run for reelection. In turn, the opposition also felt the blow of the absence of its most obvious target for critics, and several parties felt that their speech needed to change since the official party was a different one without its main figure. 

In no opposition group Mr. Kirchner’s death caused more changes than in the Dissident Peronists, since even their own reason for existing would have to be rethought. The group met and ratified that they would not seek unification with the K supporters of the Peronist party, although important differences emerged within them and the Dissident Peronists seem to be moving to divisions and defections. Certainly, it is not yet clear what shape this group may take: they may still be one of the main opposition parties or become minor players in next year’s elections. This group is still deciding its future. 

With this state of uncertainty in many important political groups of the country, it would have been surprising that such environment would not have been transferred to Congress. And the main law that had to be dealt with prior to the termination of the ordinary period of sessions was nothing else than the budget law for 2011. In that respect, the draft budget law for 2011 sent by the official party contained several aspects that were unacceptable for most part of opposition, such as an estimated inflation of 8.4%, an expected growth of 4.3% for 2011, the use of Central Bank reserves to pay debt for US$ 7.5 billion, and an important amount of funds to be spent in public works that would imply –for opposition- depositing in the Ministry of Public Works plenty of discretion in the use of funds in an electoral year. 

The opposition said that the underestimation of growth and inflation were destined to obtain a surplus during the coming year, and thus the Government would be able to count with substantive amounts that could be used with a great degree of discretion through emergency decrees or superpowers, as the abilities to reallocate budget items by the EP are called.

The Minister of Economy requested that there was a rational debate about this issue. The opposition in turn, presented two alternative draft budget laws correcting most of the items pointed out as problematic, and providing for an inflation and growth more in keeping with the private firms’ estimations and eliminating or limiting the use of the Central Bank’s reserves. Since the opposition did not manage to support a single draft, the official party voted one on November 3rd as the majority draft in the relevant commission, which was sent to the plenary session. 

The House session where the budget was discussed took place on November 10. There, two opposition representatives said that they had been contacted by official party members (a representative and officers) and were indirectly offered benefits if they approved the official party's draft or left the session so as to allow the official party to approve its draft. The allegations were rather general and did not contain specific offers. A big scandal ensued. The session ended with the drafts being sent back to the commission to be re-discussed by the political parties, which was a defeat for the official party. Such re-discussion did not take place and then the sessions that were called by the official party to approve its draft failed. 

In the meantime, also the bribery allegations were not pursued in the internal commissions of the House. Only court actions continue, since the official parties obtained support from some opposition members to close the issue, after a scandalous session in the relevant commission took place, where insults and physical aggressions were seen. 

As a result, most likely that there will be no draft budget law approved for 2011, which would imply more discretion for the Government to handle funds. That is because the budget law for 2010 would be extended, with items that would easily be surpassed in amounts and then the Administration would need to resort to decrees to provide for the necessary expenses and the use of the additional amounts of tax revenues. And all of that in an electoral year. 

We mention also that the President announced that the Paris Club had agreed to negotiate with Argentina without the IMF intervention, for which negotiations would ensue. Few information was provided other than that. The details of the negotiations and/or of the eventual agreements are still unknown. The market took the news well, but cautiously, considering the precedents of the case where payment had been announced in the past. It is anticipated that the Paris Club agreed to such negotiations in the expectations that a short payment would be received (i.e. within a year or similar term) and the Argentine Economy Minister said that such term would not be possible. Given the difficult relationships in the past, it is clear that the advances on this front need to be closely followed. Negotiations are said to start in December 9, 2010.

As to the IMF, we mention that the Government admitted that it would seek the IMF’s help in order to revamp its discredited official statistics office -INDEC-. The announcement was made by the President and then also by the Minister of Economy, and it was indeed surprising. This turn of events may lead to think that there may be an admission of problems with the official statistics, something that the Government has so far sternly denied. The Economy Minister said that this measure, that implies mending some fences with the IMF, is not related to the Government’s policies towards debt payment. The IMF confirmed the move.

Markets and analysts took this news very well, and there is the impression that there may be a change with respect to Mr. Kirchner’s harsh line against the IMF. We will have to see. 

We conclude this section by saying that the ordinary period of Congress’ sessions will finish by the end of this month. Then, the political activity may turn into deciding the names of the tickets for next year’s primary and then general elections to be held in October. Being next year an electoral year, news in the political field will not be scarce in our coming reports.
Top
Economy News
The economy seems to be doing well. In this respect, the Argentine tax authority announced that tax revenues were up 36.6% in October 2010, with respect to the same month a year earlier. And the official statistics office (INDEC) said that supermarket sales increased 17.9% year-on-year in September 2010 and 0.2% monthly. Construction increased 8.5 % (yearly) and 0.4 % (monthly), also in September 2010.

And some industries are showing impressive numbers. For instance, car patents were up 28% up and 51,199 new cars were sold in October 2010.

In turn, INDEC announced that the economy grew 7.8% in September (annualized), the lower rate since March 2010, although still an impressive number. INDEC also announced that the trade surplus in October 2010 dropped 19% from a year earlier, showing signs that imports are growing faster than exports or commodity prices. This index is key in Argentina.

Also, some other numbers show the need to be cautious. Monthly inflation reached 2.1% according to reputable private firms. And there was a 15% raise in beef prices in the September–October period. The Government blamed producers for high prices and for inflation in general and, even though there were some opposing statements by officers of the current Administration regarding inflation and what sector of society it affects the most, the official argument still says that there is no generalized inflation but “price tensions” in some sectors linked to the Argentine economic structure. Consistently, INDEC’s October inflation reached 0.8% and 11.1% in 2010. Private firms double, at least, such estimations.

The news that the IMF will send a group of experts to Argentina to help improve the measurement of statistics may be seen as an official acknowledgment of the existence of a problem in that front, but such Government’s move has just been announced so it will be necessary to wait to see whether any improvement comes out of it. The markets placed some expectations already. A better inflation measurement may imply higher yields in inflation-linked securities. 

As seen, the numbers of the Argentine economy seem to be pretty good. Inflation is a matter of concern and also how the crisis in Ireland and the changes in the Brazilian administration may impact Argentina. We will follow on those issues next month.
Top
G. Breuer News
For more information, you may read the November 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.
If you do not want to receive this newsletter anymore, or if you think someone else in your organization should be receiving it, please reply to [email-masked]. 
© G. Breuer, 2010.

G. BREUER
Tel: 54-11 4313-8100
Fax: 54-11 4313-8180
e-mail: [email-masked]
Web: www.gbreuer.com.ar  

************************************************************
PRIVILEGED AND CONFIDENTIAL

This e-mail message is intended only for the use of the individual or entity 
to which it is addressed and may contain information that is privileged, 
confidential and exempt from disclosure. If you are not the intended
recipient, please do not disseminate, distribute or copy this communication,
by e-mail or otherwise. Instead, please notify us immediately by return
e-mail (including the original message in your reply) or by telephone at
+54-11 4313-8100 and then delete and discard all copies of the e-mail. 
Thank you.

Este e-mail está destinado al uso por parte de la persona o compañía que
figura como destinatario y puede contener información privilegiada,
confidencial y que no puede ser divulgada. Si Usted no es el destinatario
del mismo, le rogamos no diseminar, distribuir o copiar su contenido por
e-mail o por cualquier otro medio. En tal caso, por favor, notifíquenos
inmediatamente por e-mail (incluyendo en su respuesta el mensaje original)
o por teléfono al +54-11 4313-8100 y luego borre todas las copias del
e-mail. Muchas gracias.

************************************************************