When Argentina’s former president Néstor Kirchner died suddenly a year ago, his successor and wife Cristina Fernández de Kirchner “seemed to have lost not just her husband and political partner but also her grip on power and appetite for it”, says The Economist. But her critics wrote her off too soon. Fernández – who was first elected president in 2007 – has been comfortably re-elected with almost three times the votes of her nearest rival.
Her success is due in part to skill, but also “some extraordinary strokes of luck”: Kirchner and Fernández came to power after Argentina’s devaluation and sovereign default in 2001, yet at a time when agricultural commodity prices were soaring. Being in charge during a strong boom that followed such a traumatic event ensured their popularity.
“Unfortunately, the next four years are not going to be so pleasant,” says Walter Molano of BCP Securities. The favourable conditions that propelled fast growth – including loose monetary policy, robust exports, enormous state subsidies and large wage increases – cannot continue indefinitely. A currency devaluation will be needed to restore competitiveness after several years of 20%-25% inflation (official statistics give a much lower figure, but nobody believes them). Argentinians are already moving assets into hard currencies in preparation for this and the peso is under pressure.
The central bank has already spent around $4bn to defend the exchange rate, says Capital Economics. Now, Fernández’s first move after re-election has been to force oil and mining companies to bring export revenues back into the country. These measures “smack of desperation”. It seems clear that Argentina will see a currency crisis and recession at some point during Fernández’s new term.
The one silver lining, says Molano, is the low level of consumer debt: bank credit to the private sector is just 16% of GDP. Hence there should be no financial-sector problems. And bank stocks – together with real estate – are “extremely cheap”, with very strong balance sheets and high profitability, says Javier Kulesz of UBS. So adventurous contrarians should keep an eye out for buying opportunities in stocks such Banco Macro (US: BMA), the largest domestically owned private bank, as the boom comes to an end.