Economy Minister Hernán Lorenzino delivered the 2013 budget proposal to Congress today, giving the nation a peek into the executive branch’s vision for the coming year.

The proposal predicts an exchange rate of $5.10 to the dollar, growth at 3.4%, and growth in investment at 7.4%. The official inflation rate is estimated to hit 10.7% by the end of 2012 and 10.8% in 2013. Tax revenue is expected to total over $822bn, a 22.7% increase from 2012, reflecting at least in part, a rise in inflation. The trade surplus, according to official estimates, will be more than US$13bn.

The current policy of paying off foreign debt with reserves will be continued up until US$7.8bn. This cap exceeds the US$5.7bn paid in 2012 by 40% and 2011’s US$7.5bn by 5%.

Agustín Rossi, Congressional Head of the Frente para la Victoria (FPV), the same party to which President Cristina Fernández de Kircher belongs, was optimistic about the proposal. He applauded the continuation of “social investment” and debt reduction, and commented that the proposal used a “level of reasonable expectations” for growth. He predicted the Budget and Treasury Commission would begin to consider the proposal next Wednesday and that by late October, the congressional Lower House would have approved it and passed it to the Senate.

The federal attorney, Jorge Di Lello, has asked judge Ariel Lijo to archive the complaints against the economy minister, Hernán Lorenzino, and the head of the national Mint, Katya Daura, for their intervention in the print company formerly known as Ciccone Calcográfica.

Jorge Di Lello said that the judge should archive the case due to “lack of crime”.  Di Lello explained that there were no conflict of interests during the transfer of the company into the hands of Lorenzino and subsequently Daura.

He continued to explain that the transfer was completed by the only company that had the capacity to print paper money at the time, adding that the expropriation fell within Article 7 of Law 26761 which means that it was within the “public order”.

The case was originally presented by lawyer Carlos Torora who asked the two officials to be looked into for the violation of the Public Ethics law. Torora said that Daura first contracted the private company to print the bills and then later assumed an intervention.

Afterwards, the complainant expressed that the same hand of the law be extended to Lorenzino for his use of his ministerial powers to do the first intervention of the company.

Although the act was condemned by Congress, Página 12 points out that if the judge concedes this request, the case will be closed.

Representatives of the national government and Córdoba province were today unable to reach an agreement in the Supreme Court over a claim for over $1bn in outstanding pension payments made by the province.

After the unsuccessful mediation, the governor of Córdoba province José Manuel De la Sota, publicly criticised the national government, saying that it refused to accept responsibility for the debt and instead requested the province reduce its pension payments.

“We are not conspirators nor enemies of the government, nor in a push for power,” said De la Sota. “We just want what we are owed.”

Economy Minister Hernán Lorenzino later denied De la Sota’s claims, saying in a press conference that the national government had not proposed a cut in the province’s pensions. Lorenzino admitted that the province has serious fiscal concerns, but declared that “the problems of the governor of Córdoba have nothing to do with what the [national] government has done in recent years.”

The dispute relates to an agreement over the harmonisation and financing of the pension system signed between the provincial and national governments in 2009, under which the national pensions agency ANSES would transfer funds to Córdoba to cover pension deficits. The payments stopped in 2011 after the national government accused the province of not harmonising its pension system with the federal one.

The national government has also been in a dispute with other provinces this year related to the country’s co-participation system.

Economy minister Hernán Lorenzino today re-iterated criticism of ratings agencies at a forum of the Council of the Americas; “Argentina: Economic and and political perspectives”. The meeting, which took place in the Alvear Hotel in Buenos Aires, was a summit coordinated by the Argentine Chamber of Commerce. Lorenzino spoke about the Argentine economy and denied the validity of negative credit agency indicators.

Lorenzino spoke out to assure the strength of Argentina’s economy which he claims is seeing “unprecedented growth”. He also highlighted the lack of neutrality and risk inherent in trusting ratings agencies and emphasised the fallibility of their judgements.

During the meeting between the Buenos Aires government and business leaders across the continent, Lorenzino said of ratings agencies,

“They calculate debt, but they can’t assure the value of their judgements. They only give opinions, he said”

Argentina’s risk factor according to ratings companies was better in 2001, directly before the financial crisis, than today.

According to Lorenzino “if that isn’t the best sign of something going badly, I don’t know what is.”

“For five years they’ve named us as a country in crisis and predicted something is about to blow up, but it never does” he said, going on to claim Argentina’s economy is seeing the strongest growth in its recent history.

He went on to say that rating agency diagnosis are subjective and also damaging, referring to the market reactions catalysed by rating agency judgements.

“These opinions are not neutral, they influence the value of the debt,” he said, adding “those affected by these diagnosis suffer problems they haven’t caused.”

Argentina has had a long history with credit ratings agencies, which reflected a highly inaccurate image of the Argentine economy prior to the dramatic 2001 recession.

The Forum will focus on business and the economy and a key section will deal with the nationalisation of oil company YPF. On Thursday 30^th August Manuel Galuccio, CEO of YPF will present his “100 day plan” to recuperate profits . Today, the results o the exploratory oil plan for Argentina will be unveiled.

Spain’s Vice President Soraya Sáenz de Santamaría announced today that they will be suspending their purchase of Argentine bio-fuel. The move comes after President Cristina Fernández de Kirchner’s decision to expropriate 51% of YPF.

The Spanish government’s decision represents a significant loss of investment for the Argentine oil companies. Last year, Spain spent US$990 million on Argentine bio-oil – 66.3% of all bio-fuel sold in 2011 – but Sáenz de Santamaría declared the country will be now be looking elsewhere in Europe.

The Spanish government, in their weekly cabinet meeting, also announced that they are to revoke the trade benefits given to Argentina. A resolution to suspend the beneficial trade tariffs on imports from Argentina to the EU was also approved by the European Parliament today.

In Argentina, the Planning Minister Julio De Vido invited Brazilian state-run oil company Petrobras to invest in YPF. In what has been seen as a move to reassure the Latin America energy giant, who has large concessions in Argentina, of their loyalty and safety of their oil investments in the country.

Critics have suggested the decision to expropriate from Spain’s Repsol has made the task of finding future investors difficult. This is particularly disquieting for De Vido as he has expressed a desire to involve other international oil companies, such as Exxon, and Chevron and ConocoPhilips.

Governments across the globe have raised concerns over Argentina’s decision to expropriate. Although the IMF, whose annual meeting is tomorrow, has said that the issue is bilateral and not their concern.

Minister of the Economy, Hernán Lorenzino, today reiterated this, stating the issue was of national concern and “not on the agenda of multilateral organisations.”

Specifically referring to the IMF annual meeting, which will start in Washington tomorrow, he reassured that “there is no negative climate.”

President Cristina Fernández de Kirchner’s second term starts now. And with it comes a new budget bill for 2012, which is due to be debated this week in Congress.

Former Economy Minister Amado Boudou, now Vice President, stands with President Cristina Fernández de Kirchner in Congreso (Photo courtesy of CFK Argentina)

The key word for the President’s second term appears to be ‘continuity’. The issues remain very much the same, and so does the government’s approach to tackling them. This is perhaps best shown by her recent cabinet shift in which Economy Minister Amado Boudou moved up to the role of vice president, making way for Finance Secretary Hernán Lorenzino to step in as his successor—a man whose President Fernández de Kirchner says is “protecting the interests of all Argentines”.

Carola Sandy, economist at US-based Credit Suisse Group, believes that the appointment of a man with the support of the Argentine banking sector, including that of Central Bank chief Mercedes Marco del Pont is, “a sign the economic policy of recent months will continue”. She added that “he gives continuity to Minister Boudou’s policies”, which means that recent measures to contain capital flight and to rein in public spending, via the cutting of utilities subsidies, may well be extended.

However, President Fernández de Kirchner’s landslide election victory on 23rd October does not mean her job is going to get any easier; rather that she will be able to tackle the mounting problems in the economy more decisively and with a stronger mandate. Mariel Fornoni, Director of locally-based pollster Management & Fit believes that the president is in a position to press ahead with measures to fix the problems in the economy, however unpopular they may be. “She has the political capital to do that now,” Fornoni commented in a recent interview with Bloomberg news.

At this point last year, with Congress controlled by opposition parties and negotiations on a budget for 2011 collapsed, the president decreed that the framework of the previous budget would be used, with additional spending at the discretion of the executive branch.

In the end, the consequences were minor in another year of strong economic growth. But with the global economic downturn set to hit Argentine exports (the government is forecasting real GDP growth of 5.1% year-on-year in 2012, down from 8.3% for 2011), a new budget to deal with new problems is necessary.

Top on the agenda over the coming twelve months will be to tackle one of the world’s highest inflation rates, paying down further debt, and the need to continue making largely-unpopular spending cuts.

According to the budget’s parameters, inflation will run at 9.4% in 2012, down slightly from 9.7% for this year. However, private-sector estimates continue to clash with those of national statistics agency (INDEC), with the former arguing that the government is grossly underestimating inflation, and that in reality is easily surpassing 20% annually.

In an attempt to reign in high inflation, Argentina looks set to defy market expectations of a rapid devaluation of the currency, which could prove to be counterproductive and serve to exacerbate inflationary pressure in the domestic economy, and instead opt for a strategy of moderate nominal depreciation over the medium-term.

Meanwhile, government expenditure will slow as subsidies are reduced. The draft for next year’s budget shows that public spending – which has been a strong driver of GDP growth in recent years – will rise by 20% in 2012, around half of what is has risen in 2011. That said, this year was an election year and as such should be regarded as something of an exception.

Finance Secretary Hernán Lorenzino, filling some big shoes, is sworn into his new job by President Fernández de Kirchner (Photo courtesy of CFK Argentina)

Another key issue is Argentina’s outstanding debt load, where negotiations are ongoing. With the issue becoming all the more salient with the global economy in the doldrums at present, Argentines will be comforted to know that their own debt load is in safe hands with Minister Lorenzino, as he has plenty of experience in the issue having spearheaded a programme to help Argentina restructure defaulted debt in his previous post.

Argentina has been busy paying off the fallout from its record sovereign default back in 2001 and negotiations with the Paris Club of creditor nations to settle the outstanding US$6.3bn (plus interest) of defaulted debt are ongoing. At a meeting of economic policy makers in Buenos Aires last month, Boudou was eager to point out the pro-active way in which Argentina is dealing with its own debt problem: “Some of the measures being taken [in the developed world] can worsen the problem, instead of solving it.”

Next year’s budget outlines plans to continue withdrawing from the central bank’s foreign currency reserves to pay down debt for a third consecutive year in 2012, rather than attempting to return to resume global debt sales for the first time in a decade. Last year’s budget bill stipulated the use of up to US$7.5bn from the coffers, while in 2012 the administration has requested congressional approval in the budget bill for US$5.7bn of reserves to be ring-fenced to go towards this purpose.

In short, it seems that under the draft 2012 budget Fernández de Kirchner is set to largely continue with the expansionary fiscal policies that characterised her first term in office. A closer look at the numbers, however, shows that the coming year will not be without gradual policy adjustments – in particular the cap on fiscal spending—as Argentina attempts to tackle with its own issues against the backdrop of a worrying global macroeconomic climate.

But this is something the government seems well prepared for. At a speech given at an aluminium plant in Buenos Aires province on 30th November, President Fernández de Kirchner commented: “During a period in which the world seems like it is crumbling and is beaten down by speculation, we in Argentina have come to insist that our vision is one of growth.” She continued: “During these difficult times, we have to redouble our efforts in every sector to protect what we have achieved.”