Argentina politics: Battle for power heats up

FROM THE ECONOMIST INTELLIGENCE UNIT

Argentina’s opposition has been pressing on with a series of reforms, some aimed at limiting the power of the executive branch, particularly in the area of economic policymaking. Others are designed to boost opposition parties’ image ahead of the October 2011 presidential elections and put the government in a difficult position. The opposition has had a solid majority in the Chamber of Deputies since December, but the Senate remains evenly balanced, and both government- and opposition-sponsored bills have languished in recent months as a result. Given this, the chances of success of the reform agenda are uncertain. But tensions between the two sides are likely to increase.

Among the major initiatives presented by the opposition in recent weeks is a long-awaited reform of the Consejo de la Magistratura (the Magistrates’ Council, which is in charge of judicial appointments), which has been approved in the lower house by a vote of 136-86 and now awaits debate in the Senate. This is part of a larger reform to revamp the corrupt and inefficient legal system, which will prove a lengthy and difficult task.

Reforms to the Supreme Court were undertaken at mid-decade by the government of Néstor Kirchner (the husband of the current president, Cristina Fernández de Kirchner) and reduced politicisation of the Supreme Court. But the current government’s commitment to the independence of the judiciary is questionable. The Fernández government has had a difficult relationship with the courts of late, which have been forced into the role of arbiter between her administration and the opposition in recent months and have come under pressure to side with the government.

Curbing executive power

The key aim of the opposition’s reform proposal is to reduce the executive’s influence in the judicial appointments process, which it alleges has increased since the government last reformed the Council in 2006. Among other measures, the initiative increases the number of Council members from 13 to 18 (thereby eliminating the government’s powers of veto), appoints the president of the Supreme Court as the head of the Council, reduces from five to three the members on the council that are selected by the executive, and increases the weight of academics and experts in the Council.

The bill establishes that the Council will be composed of a president, three judges, six legislators, four lawyers (two more than in the current council), three academics (two more than at present) and a representative of the executive. This would reduce executive representation to only three: two legislators and the executive representative, against four representatives from the opposition (four legislators). The bill also introduces reforms to speed up the selection process, implements periodic monitoring of both the Council and the courts, and creates a consultative committee composed of representatives of human rights organisations, trade unions and other civil society organisations.

Bid to end budget “superpowers”

In an attempt to circumscribe the Fernández government’s considerable discretion in economic policymaking, the Chamber of Deputies has approved the elimination of the so-called “superpowers”, which allow the executive to reallocate budget funds without the approval of Congress. Approval by the Senate remains in doubt, but if it were passed the bill would reverse the reform of the Financial Administration Law implemented in 2006, which made permanent the cabinet chief’s power to reallocate budget funds, including those that affect current expenditure, capital expenditure and debt service (a power that had been approved by Congress in every year since 1999).

The bill also establishes that the executive will need the approval of Congress to allocate funds from above-budget tax revenue or from non-traditional financing sources such as the Central Bank or the social security agency (the latter have been used increasingly by the government to finance projects off-budget). It is estimated that between 2003 and 2009 the government reallocated budget funds of around Ps150bn (US$38bn), equivalent to some 20% of the budget. Of this total, over two-thirds resulted from above-budget revenue, which partly reflects a long practice of underestimating revenue in the budget to allow for discretional reallocation of funds during the year.

Even if the bill is approved by the Senate, President Fernández could still veto it, although this would carry a political cost. It would expose the government even more to criticism that it uses the reallocation of funds on a discretional basis to further its political aims. The government could continue to reallocate funds using decretos de necesidad y urgencia (DNUs, emergency decrees), but these would have to be approved by Congress.

Pension debate

Another high-profile show of the opposition’s new power has been its attempt to pass a bill to raise the minimum state pension to 82% of the minimum wage (which stands at Ps1,500 per month). This effort seems at least partly intended to put the government in a tough political position, as it has resisted the increase because of its fiscal cost. The reform would amount to an increase of some 37% in the minimum pension, to Ps1,230, from its current level of Ps895. The government puts the fiscal cost at Ps22.4bn, implying a rise of around 25% in social security expenditure. This would turn the national pension agency’s operating surplus into a deficit and eventually bankrupt the agency.

The proposal, which has already been approved by a Senate commission, was set to be discussed by the full Senate in August after Congress’s winter recess. However, the government has moved in recent days to pre-empt the Congress’s actions. At the end of July Ms Fernández announced that her administration would increase the minimum pension on its own, but by a more moderate 16.9%.

A year of tensions ahead

The latest feuds and power struggles between the executive branch and the opposition parties in Congress indicate that Argentina has now entered what will be a protracted period of political tension in the run-up to the presidential election of October 2011. Relations between the populist government and the opposition are likely to deteriorate further.

Against this backdrop, various factors raise the risk of destabilising popular demonstrations, including the recent re-emergence of food price inflation. To keep a lid on discontent and with an eye to the election, the government will maintain its highly expansionary fiscal policies, which are targeted at gaining the support of key local politicians and the urban poor. Already, and in the midst of a rapid economic rebound, this policy appears to be driving a gradual recovery in the government’s approval ratings to a (still low) 20-25%. This makes it increasingly likely that Mr Kirchner will join the presidential race.

The former president’s prospects are highly uncertain at this early stage, despite his access to the power of incumbency, and the opposition is sure to do all it can to prevent him from returning to power. What is clear is that the battle has already begun.