Argentina´s Economic Outlook 3Q 2013

There has been a change in the investors mood as the results of the primaries have put an end to the hopes of Cristina’s re-election. The front runners for the 2015 presidential elections are Massa and Scioli. Both have similar views on the economy, and they are likely to adopt economic policies that would significantly improve the business climate, address key problems as the energy crisis and reinsert Argentina in the international financial markets.
The optimism about the medium term outlook is only shadowed by the risks regarding policy decisions in the next two years. The big question is whether Cristina will become a more pragmatic leader or if instead she will double the bets as in the aftermath of previous elections.
The recent health problems that Cristina has been experiencing are unlikely to change the medium term outlook.
The major risks for the next two years center on the evolution of international reserves which have been falling at a rate of USD 800 million a month and the parallel exchange rate, as the spread over the official exchange rate has been hovering in the 70% range.

The Central Bank has been trying to reduce the exchange rate spread by accelerating the rate of depreciation of the official rate to around 2.5% per month, and tightening monetary policy by reducing the rate of monetary growth from 40 % to 25%, and by increasing domestic interest rates to around 20% to bring down the parallel exchange rate.