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ISSN 1474-5615
www.latinamericamonitor.com
Business Monitor Internationals monthly regional report on political risk and macroeconomic prospects
Supreme Court Ruling A Blow Over the medium term, we believe the
ruling is consistent with our view that the
political balance of power will shift away from
To Fernndez the Fernndez administration and toward
more moderate forces within either the broad
BMI View: We believe a recent decision by the Argentine supreme court to Peronist coalition or the opposition. By block-
overturn a landmark government reform bill poses a significant political threat ing the reform, we believe that the court has
to President Cristina Fernndez de Kirchner. This development reinforces stopped a policy whose end result would have
our view that the president's legislative allies will lose seats in this October's been the erosion of the judiciary's independ-
ence and the further aggregation of power in
midterm election and that her critics will be increasingly emboldened over
the FPV.
the coming months, ensuring that she is unable to run for a third term in 2015.
The judicial reform would have subjected
The Argentine supreme court recently de- term developments in Argentine politics. the judiciary to greater direct political pres-
clared unconstitutional a judicial reform In the short term, we believe the decision sure. Two of the more controversial compo-
bill pushed through by President Cristina supports our view that the ruling Frente Para nents that were struck include :
Fernndez de Kirchner, underscoring our la Victoria (FPV) party and its allies will lose
view that 2013 will see a weakening of the seats in this October's midterm election. Op- Direct Election Of The Council Of Magis-
president's political strength, a defeat of her position parties, judicial advocates, and civil trates: The council of magistrates is the body
allies in a mid-term congressional election, society organisations had spoken out against responsible for hiring and firing judges, and
and the emboldening of the president's crit- the reform, and large demonstrations in April its members are currently decided upon by
ics both in her own party and in the opposi- had focused on the reform as an example of lawyers, legal scholars, and judges. The reform
tion. Fernndez had proposed the reforms overreach by the president. would have replaced this system with direct
as part of her initiative to 'democratise' the The public rebuke by the supreme court election of council members, who would have
judiciary, an institution that has remained will make the president look weak ahead of been required to register as candidates with
stubbornly independent. the midterm congressional elections in Oc- political parties.
The courts have blocked the president's tober and has validated the views of many of
attempt to break up the Clarn media group, her critics. To the extent that it has any affect Expansion Of The Council Of Magistrates:
an organisation that has been critical of the on the campaign and electi on, the decision The reform would have increased the council
administration in the past. We see this ruling, is likely to embolden those who oppose the from 13 to 19 members, allowing the domi-
which came down in a lopsided six-to-one vote president and persuade some voters that the nant political party currently the FPV to
against the president's reform bill, as support- administration has gone too far, leading to put many like-minded candidates on the
ing our views on both short- and medium- greater support for opposition candidates. council as soon as the election in October.
BMI View: Argentina posted real GDP risk to our forecast for growth to slow end of the year, will further exacerbate
growth of 3.0% y-o-y in Q113, which from 1.9% in 2012 to 1.8% this year. weakening consumer sentiment and
was stronger than the 2.1% y-o-y growth That said, we maintain that a currency purchasing power, weighing on growth
reported in Q412, thus posing an upside devaluation, which we expect by the in the second half of 2013.
2006
2007
2008
2009
2010
2011
2012
2013f
2014f
2015f
2016f
2017f
60
have seen increased investment in recent 6,000
55
years, and we believethe development Current account balance, US$bn
Current account balance, % of GDP
5,000
50
4,000
renewable energy sources could become a Note: f = BMI forecast. Source; BMI, BCC
3,000
45
Jul-04
Jul-05
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
BUSINESS ENVIRONMENT account balance. We believe that profit re- Copper Exports
Total Exports (FOB), US$mn
patriation is likely to slow as multinational Copper Exports, % of Total (RHS)
Unions Align With Protestors mining firms see their profit margins narrow Source: BMI, BCC
On June 26, Confech, the main confedera-
on the back of weaker metals demand and
tion of university student protestors, held its Risks To Outlook
lower prices. Chile's Q113 income deficit
fourth national mobilisation of 2013, occupy- With copper prices looking precarious from
(US$2.7bn) was the smallest the country has
ing voting stations ahead of the upcoming a technical perspective, a sustained sell-off in
seen since Q109.
presidential primaries to be held at the end metals prices beyond our current forecast in
of the month. For the first time since large- tandem with slower Chinese growth could
Financial Account Also Set For Continued
scale student protests beg an in early 2011, weigh heavily on Chile's external accounts in
Weakness
major unions announced their support of the the coming months.
We believe that foreign investment into Chile
protests. We believe that the involvement of Such a scenario would result in much wider
will moderate in the coming years, keeping
unions could mark a new phase in the current current account deficits than we currently
the financial and capital accounts in deficit.
chapter of political unrest in Chile,posing forecast. Slowing real GDP growth could
Indeed, our Commodities team expects that
a moderate risk to Chile's strong business also exacerbate growing discontent among
capital expenditures in Chile's mining sector,
environment rating through increased op- workers at Chilean ports and industrial mines,
the engine of the country's recent growth, will
erational risk at ports and mines. further weighing on inbound investment, and
stagnate as lower metals prices cut into profit
Our Business Environment Rating is 64.0.
margins, with foreign mining firms likely to ensuring that the capital and financial account
become increasingly selective in choosing new balance remains in deficit and international
projects (see 'Mixed Capex Picture Across Latin reserves are drawn down.
we expect presages a period of moderately that she will seek to increase the income tax Expenditures, % chg y-o-y 25
that the election of a centre-left government, Budget Deficit Forecast Next Year 10
Chile Nominal Budget Balance, % Of GDP
combined with a growing impetus to stimulate 10 5
Q111
Q211
Q311
Q411
Q112
Q212
Q312
Q412
Q113
2
We forecast that government expenditure Source: BMI, BCC
0
will increase by 10.0% in 2014, moving the
-2
central government's nominal budget bal- Risks To Outlook
ance from a surplus into a 0.8% of GDP defi- We note that despite Bachelet's more lib-
-4
2007
2008
2009
2010
2011
2012e
2013f
2014f
2015f
in spending on the country's fiscal accounts percentage of GDP was comparable under
Note: e/f = BMI estimate/forecast. Source: BMI, BCC
will be that revenue growth will continue to the Bachelet and Piera administrations,
decline owing to lower commodity prices hovering around 17.0% of GDP under both
and weakening demand for the country's We believe that regardless of the ultimate governments. Therefore, although we fore-
exports, principally copper. Bachelet's plan, shape of the reform, education will continue cast a nominal fiscal deficit in 2014, we do
which calls for an end to for-profit education to be a central issue in the run-up to the elec- not expect Chile's government to drastically
in Chile, along with progress towards enact- tion, and will be an important measure of abandon its historical commitment to fiscal
ing universal free education at all age levels, how far to the left Bachelet is willing to shift prudence over the coming years.
BMI View: Unemployment in Chile con- in April, and the historically low rate of higher through the rest of the year, end-
tinues to tick up, with the jobless rate 6.0% at the start of the year. We expect ing 2013 at 6.8% as slowing economic
coming in at 6.4% in May, up from 6.2% unemployment to continue inching growth weighs on the labour market.