Argentine voters elected a new president last week — or did they?
Cristina Fernandez de Kirchner, the country’s new head of state, has succeeded her husband, Nestor, who went out on a high after four years in office.
The Kirchner dynasty is in good odour with the Argentine electorate — Néstor has restored economic and fiscal order to a ruined country and cleaned up corruption.
But investors’ feelings about the Kirchners are a little more mixed. Nestor, after all, was the one who fought off international creditors after the world’s largest debt default to achieve a bond exchange with a 75% haircut for investors in 2005.
So investors may be hoping for a more market-friendly approach from Cristina Fernandez de Kirchner.
It is very early days, but the first signs suggest they should not get their hopes up.
Days after the election, the government sacked another four employees at the supposedly independent national statistics agency, Indec, for alleged “disloyalty”.
This is the latest round of dismissals in a dispute that has been festering all year. Investors fear that the state is pressuring Indec to reduce its inflation figures — and hence, that it is rigging the government bond market.
The row started in January when Indec staff expressed alarm over then finance minister Felisa Miceli’s decision to replace the head of the consumer price index office with one of her own former advisers.
As investors began to question the choice of basket components in the consumer price index, tensions erupted into open warfare in March, when the union representing Indec staff called a strike to protest at the “manipulation” of CPI data by the government.
Even the number of staff sacked since then is a matter for debate, with figures ranging from 13 to 19.
Indec has allegedly been forced to include prices that the government sets as guidance for traders under voluntary price agreements, rather than the actual market values.
September CPI came in at 8.6% according to Indec, but private estimates range from 15%-20%.
Perhaps most embarrassing, Julio Cobos, a close ally of the Kirchners, had to admit that Indec’s figure for September inflation in Mendoza, the region where he is governor, was only half the estimate published by his own local authority.
For investors, this is no mere academic discussion. Around 42% of Argentine public debt is indexed, and President Fernández has already acknowledged that a one percentage point rise in inflation costs the government more than $400m in extra debt servicing costs.
Little wonder that one investor caustically calls the alleged manipulation of inflation data Argentina’s “other haircut”.
Fernandez de Kirchner pledged on the campaign trail to adopt a “US-style” methodology for calculating inflation, but the union is not convinced.
Investors are also likely to be doubtful, especially as she had earlier called Indec’s numbers “impeccable”.
In private, a senior central bank official admits that “the thermometer is broken”.
The government will not now be able to re-establish confidence in Argentina’s CPI figures unless it assembles a respected and independent committee of experts to draw up a new price basket.
Inflation-linked bonds are only one kind of debt that is likely to cause Fernandez headaches as she settles into office.
The hold-out bond investors who refused to participate in Argentina’s debt exchange are still seeking redress through courts in the US and Europe. They own around $25bn of bonds.
And last Friday, the new head of the International Monetary Fund, Dominique Strauss-Kahn, called on Argentina to resolve its $6bn of outstanding debt to the Paris Club of state creditors.
Understandably, Strauss-Kahn would not discuss the Argentine government’s own demand: that the Paris Club should drop its traditional practice of making debt forgiveness conditional on an agreement between the debtor nation and the IMF.
In the absence of any IMF anchor, the markets scour Cristina’s statements for a sign of whether she will take a more investor-friendly approach than her husband.
The planned launch of a new CPI index over the coming weeks might offer a first indication.
But the continued rough treatment of Indec staff is an inauspicious start, and one former finance ministry official fears the First Gentleman will still be influencing economic policy from “down the hall”.
This article was also published in the "Tuesday View" column of our sister publication Euroweek, the newspaper of the global capital markets.