Argentina: New Brooms and Dirty Bathrooms

“Events, my dear boy, events.” (British Prime Minister Harold Macmillan on the greatest challenge for politicians.)   

The Argentine Presidential election season unofficially opened on Sunday, when it was revealed by official sources that Cristina Kirchner would indeed be the incumbent government’s candidate for the October 28th poll. However in the midst of the first shots fired across bows, a strange turn of events may have made the possible move away from present economic policy that much easier.  

In June, a bag containing a large quantity of ready cash (a sum between U$65,000 and U$250,000 depending on which story you care to read) was found by police in the en-suite bathroom of economy minister Felisa Miceli’s private office during a routine security inspection. According to the journalist who recently broke the story, the police wrote out an official report of the finding which then strangely ‘disappeared’ and Miceli denied everything. The story became even more embarrassing when Miceli later said it was indeed her own money destined to buy a property. Once it was realized that this meant she was possibly guilty of tax evasion (large transactions in cash and not via the banking system are frowned upon in today’s Argentina), the story was then changed to “money for personal use”. The mind boggles as to why Miceli needs that much “personal” cash hanging round the office; inflation may be high, but a lunchtime delivery pizza is still pretty reasonable in downtown Buenos Aires.  

The story has gained a lot of traction, coming after another recent scandal involving alleged bribes that has tarnished parts of the Kirchner outer circles. Yesterday an official complaint was registered and the case is now in the hands of the federal judiciary. This is not to be taken lightly; Miceli will have to answer to an official inquiry that may or may not lead to serious charges. The Kirchner administration will want to avoid any scandal situations at all costs during election season, so if the Miceli money bag story starts to cast shadows, a rapid change at the ministry would come as no surprise to observers.   Fellow blogger Otaviano Canuto recently remarked here (and I quote), Argentina is a case “in which drastic policy adjustments are likely to become inevitable”. I heartily agree with this viewpoint, and would therefore make the following observations.  

1)      There is little doubt that, although aiding exports, the current weak peso policy in Argentina is fuelling the country’s worrisome inflation rate. 2)      Felisa Miceli has been a strong proponent of the weak peso policy. 3)      As mentioned in the previous blog “Argentina: The Strong Peso Cometh?” the proposed transition from Don Kirchner to Doña Kirchner opens an excellent window of opportunity for fundamental policy changes.  

Vultures are already circling the Ministry of the Economy and talk in the city is of who will replace when (not if) Miceli resigns. So be it. Interestingly, one of the short-listed names is Beatriz Nofal, an eminently qualified economist championed by Cristina’s likely Vice Presidential running mate, Mendoza’s senator Julio Cobos. Nofal was recently installed (against the wishes of Miceli, but that’s another story) as head of a quasi-governmental office responsible for attracting foreign investment to Argentina. Nofal has done the rounds, visiting various countries on the promotion tour and also heading up Argentina’s delegation at the recent Davos summit. Her star is most certainly in the ascendancy. She is on record as being pro foreign investment and anti weak Peso policy. As a sidebar, the weird legacy of post Peron Argentine politics means that classic left/right divides are often blurred and smudged; in Nofal’s case, although belonging to the ostensibly centre-left UCR (Radical) party, she is far more laissez-faire and anti-intervention than centre-right presidential candidate and ex-economy minister Roberto Lavagna, who would continue the weak peso policies of the past 4 years if elected President.  

Nofal is not the only name being bandied about, but if she is given the job in the weeks and months ahead the financial community should take it as a no-brain signal that the days of ArgP$3.10 to the dollar are numbered. By applying a new broom and putting a new face at the head of economy in Argentina, ‘Los Kirchner’ can potentially make space for the sea-change in economic policy that this observer hopes for; that is, the stronger peso.

9 Responses to "Argentina: New Brooms and Dirty Bathrooms"

  1. Otaviano Canuto   July 4, 2007 at 11:50 am

    You have provided us with a great framework of “leading indicators” of macroeconomic policy change in Argentina, fellow blogger Mark. Do you foresee any implications as far as Argentina-Venezuela relationships are concerned?

  2. omar   July 4, 2007 at 3:57 pm

    how can a USA retail investor (less than $200k) get a leveraged arg. peso account? I’ve been looking for the past week or so with no luck.

  3. Guest   July 5, 2007 at 7:19 am

    It certainly looks bad, but it’s very common for transactions to be done entirely in cash in Argentina. When I lived there, people would bring hundreds of thousands of dollars in cash to buy and sell real estate. It happens there all the time. People have no faith in the banking system after 2001.

  4. Vitoria Saddi   July 5, 2007 at 7:33 am

    Mark, Did the Micelli episode have any impacts on the Merval? I thought Brazil was bad, but Ar is not that good either!

  5. Argen   July 5, 2007 at 7:48 am

    Is corruption in Argentina worse now than in the Cavallo/Menen period? Or the same?

  6. mark turner   July 5, 2007 at 7:57 am

    Otaviano, A subject worthy of a separate note! To answer briefly, Argentine presidential election season is one of those Chinese “interesting times”, and it’s too soon to tell how much of a negative impact the Chavez-Kirchner relationship will have on Cristina’s campaign. I would suspect Lavagna, Lopez-Murphy and Carrio (one of whom will emerge as the main oppostion candidate, probably Lavagna) will try and play the card for all it’s worth.  The joint VZ-Arg bonds and the VZ purchase of argentine paper certainly make the two countries financially linked to a certain extent. The whole issue needs better treatment than a few rushed lines here, though. You’ve given me food for thought.  Omar, Ask at JP Morgan. They may be able to help. The minimum account balance is quite high but can be negotiated (if memory serves). (Disclosure, neither i nor my employers have any affiliation with JP Morgan).  Guest, True, but here we’re talking about the minister of the economy. The laws in argentina are specific (though often ignored as you say).   Vitoria, Volatility, thy name is Merval. There hasn’t been any direct impact from this story on the Merval index….yet. The greater forces affecting the index (the Dow as always, Bonds, Brazil, the energy mini-crisis) have more influence.

  7. mark turner   July 5, 2007 at 8:11 am

    Argen Argentina has improved somewhat, but don’t expect Canada. This below is fair comment:

  8. vegas crash watcher   July 5, 2007 at 11:31 am

    Argentina will need to pay back $100 billion that it borrowed, according to a German court. They put their faith in government so deserve to suffer.

  9. Guest   July 16, 2007 at 5:57 pm

    Argentine Economy Minister Miceli Quits Amid Probe (Update3)   By Daniel Helft and Eliana Raszewski  July 16 (Bloomberg) — Argentina’s Economy Minister Felisa Miceli resigned today as prosecutors stepped up an investigation into a bag of cash found in her ministry offices, saying allegations against her have hurt the government.   President Nestor Kirchner appointed secretary of industry Miguel Peirano, 40, to replace her, Cabinet Chief Alberto Fernandez told reporters at the presidential palace.   “Peirano will continue with the same economic policies that we’ve had up until today,” Fernandez said.   A federal prosecutor earlier today asked a judge to compel Miceli to answer questions about the 100,000 pesos ($32,300) and $31,000 in U.S. currency discovered last month in a bag in the bathroom of her office at the Economy Ministry.   Miceli, 54, who held the position since Nov. 28, 2005, when she replaced now presidential candidate Roberto Lavagna, said in statement she was leaving the government to “clarify” her situation.   “There was an undeserved damage to my honor which undoubtedly affects our government,” Miceli said.   Industry Secretary   Miceli has denied that she committed a crime and said the funds were a loan from her brother for a personal real estate transaction. The money was discovered during a routine inspection by a government bomb squad in Buenos Aires.   Peirano, an economist trained at the University of Buenos Aires, was appointed as secretary of industry in 2005 after an 11-year stint as head of the economics department at the Argentine Industrial Union, the country’s largest industry group.   Fernandez said the allegations against Miceli won’t hurt the government or the presidential bid of Senator Cristina Fernandez, the wife of President Nestor Kirchner, who will run on the governing Peronist Party ticket in October elections.   Miceli’s resignation won’t affect Argentina’s economic program because Kirchner has set policy for the country and will maintain its direction, said Omar Borla, a senior Latin America economist with Dresdner Kleinwort in New York.   “The basis of the country’s economic policies is a budget surplus, strong growth and a competitive exchange rate and that’s Kirchner’s program, not Miceli’s,” Borla said.   Market Affected   The yield on the Argentine government’s 5.83 percent inflation-linked bonds maturing in December 2033 rose 2 basis points, or 0.02 percentage point, to 6.48 percent, according to Banco Mariva SA. Argentina’s peso weakened 0.05 percent at 3.1010 per dollar.   “Markets have been affected all day about Miceli’s situation,” said Rodolfo Acosta, a trader at Arpenta Sociedad de Bolsa SA in Buenos Aires. Earlier, news outlets were reporting rumors that Miceli would step down.   Miceli’s resignation follows newspaper reports this year accusing the secretary of the environment of cronyism for hiring relatives, including her brother’s girlfriend, and an investigation of alleged bribes paid in connection with a contract to build a natural gas pipeline.   To contact the reporter on this story: Daniel Helft in Buenos Aires at ; Eliana Raszewski in Buenos Aires   Last Updated: July 16, 2007 19:51 EDT