8. OFFICIAL ARGENTINE INFLATION FIGURES POINT TO SLIGHT DECELERATION IN MAY (IHS Global Insight Daily Analysis)By Benedict Mander, Buenos AiresJune 17, 2015President Cristina Fernández de Kirchner has dashed investor hopes of a radical change in Argentine economic policy when she steps down after elections this year by imposing one of her most radical advisers as the running mate of the lead candidate Daniel Scioli.Mr Scioli, the 58-year old governor of Buenos Aires province, late on Tuesday named Carlos Zannini as his vice-president and running mate. Analysts said the choice was made for him by Ms Fernández in return for her endorsement, which he needs to win the close-run election.“We expected [the president] to name someone that would allow her to constrain Scioli. But this was beyond our expectations,” commented Eurasia Group, the risk consultancy. Mr Zannini, the president’s legal secretary, is known in Buenos Aires as “el chino” because of his interest in Maoist philosophy.Argentine markets — from stocks and bonds to the currency — fell on Wednesday on the news. Investors have bid up Argentine assets on the hope that the end of Ms Fernandez’s presidency increased the probability of a deal with holdout hedge fund creditors, and so reopen Argentina to international capital markets.While Mr Scioli has campaigned on a ticket of broad continuity, amid promises to make some necessary adjustments to boost Argentina’s struggling economy, his main opponent, the mayor of Buenos Aires city, Mauricio Macri, has run his campaign on a message of wholesale change.“The formula of Daniel Scioli and Carlos Zannini represents the continuity of the most successful political project in the history of Argentine democracy,” tweeted Santiago Montoya, a close ally of Mr Scioli and president of Grupo Provincia, a financial corporation.However in the camp of the centre-right Mr Macri, the news was welcomed as evidence that Mr Scioli was just a pawn of the outgoing leftist president, and that a stronger association with Ms Fernández would cost him support among wavering voters in the centre. Some 65 per cent of the population favours political change, according to the opposition.The polarisation of the election campaign, which earlier this year was seen as a three-way race, has resulted in votes migrating away from third place candidate Sergio Massa, a former cabinet secretary who has attempted to position himself in the middle ground.If Mr Scioli wins the elections, the appointment of Mr Zannini, who has been a close adviser to Ms Fernández and her late husband and predecessor Néstor Kirchner since the 1980s, bodes poorly for the post-election policy outlook, said Daniel Kerner at Eurasia Group.Limiting Mr Scioli’s ability to break away from government policy, Mr Zannini could hamper a resolution with Argentina’s so-called “holdout” creditors, whose victory in a long-running legal battle in the US is blocking the country’s access to international markets.“As economic constraints become more acute, Scioli will be forced to make more serious changes. But the transition will be difficult and slower than investors anticipate,” said Mr Kerner.By Daniel CancelJune 18, 2015Argentina’s Daniel Scioli will be the only presidential candidate from the ruling Victory Front alliance after his rival Florencio Randazzo pulled out of contention, a government official said.Randazzo “bowed out as presidential candidate and doesn’t want to run for governor of Buenos Aires province,” Cabinet Chief Anibal Fernandez told reporters this morning. “He’ll remain in the cabinet” as Transport Minister.Scioli, the 58-year-old governor of Buenos Aires province, announced Carlos Zannini as his running mate on Tuesday, upending the internal battle to succeed President Cristina Fernandez de Kirchner. Zannini, who has been Legal Secretary and a close adviser to Fernandez and her husband and predecessor Nestor Kirchner for three decades, assures the continuity of the political model, Scioli said.Trailing in polls to Scioli, Randazzo campaigned on fixing railway infrastructure and replacing outdated train cars. While he said he was the preferred candidate of the president, Fernandez never explicitly endorsed either. The naming of Zannini as Scioli’s vice president was an inexplicit endorsement, according to Eurasia Group.Scioli either leads or is in a technical tie in opinion polls against main opposition candidate Mauricio Macri. The general election will be Oct. 25 followed by a second round Nov. 22 if needed. The new government will be sworn in on Dec. 10.By Pablo Rosendo Gonzalez and Daniel CancelJune 17, 2015Daniel Scioli, the favorite to win Argentina’s presidential election in October, chose a close aide to President Cristina Fernandez de Kirchner as his running mate, triggering a dive in bonds.Scioli, the 58-year-old governor of Buenos Aires province, named Carlos Zannini as his vice president candidate, saying he represented continuity of the political project led by Fernandez and her predecessor and husband Nestor Kirchner, who have ruled Argentina since 2003.Zannini, a 60-year-old lawyer from Cordoba province, has been Legal Secretary for the government for 12 years.“I consulted the president on this issue,” Scioli, a member of the ruling Victory Front alliance, said in an interview with the C5N television network. “Picking Zannini, a founding member of this movement with a history of proximity to Nestor and Cristina, gives certainty.”The appointment tightens Scioli’s links with Fernandez and strengthens his chances of winning in the first round of voting on Oct. 25, according to Eurasia Group. Even as Argentina’s economy has stagnated amid annual inflation of about 25 percent, Scioli has widened his lead in recent opinion polls as he promises to maintain spending on welfare programs that benefit a quarter of the population.Government notes due 2024 fell 2.28 cents to 95.8 cents on the dollar, the lowest level since Dec. 18. The extra yield investors demand to hold Argentine debt over U.S. Treasuries widened 0.25 percentage point to 6.13 points at 4:34 pm in New York. On average, the yield spread in emerging markets fell 0.01 percentage point, according to JPMorgan Chase & Co.Zannini said that after speaking with Fernandez he had accepted Scioli’s offer.“It’s the continuation of a path,” he told reporters in Buenos Aires.Kirchner DynastyFernandez’s influence will become even clearer on Saturday when the deadline ends for parties to nominate candidates for president and vice president as well as congressional offices and the Mercosur parliament. Fernandez and her son, Maximo Kirchner, may choose to run as lawmakers for the province of Buenos Aires.“Now the focus will shift to what role will CFK play in the elections, and if she will run for an elective position,” Citibank analyst Fernando Jorge Diaz wrote in a note to clients.Zannini, who rarely speaks in public, has been central in drafting legislation for both Kirchners and appeared in Congress last year to defend projects to compensate Spain’s Repsol SA for a 2012 seizure of assets by the state.‘Legal Architect’“He has been the legal architect and brain behind many controversial measures and policies of CFK,” Daniel Chodos, a strategist at Credit Suisse Group AG, said in an e-mailed response to questions. “The market is taking this negatively because this appointment reduces the chances of a change of the current model under a new government.”Having Zannini as vice president could signal policy continuity on the government’s position with holdout creditors demanding payment on defaulted debt, according to Eurasia.“While the vice president is not a particularly powerful figure, having a true CFK loyalist will increase the costs for Scioli of taking measures that CFK opposes,” Daniel Kerner, a Eurasia analyst wrote in a report. “This bodes particularly poorly for a deal with holdout creditors.”Opposition presidential candidate Mauricio Macri said Zannini was imposed on Scioli by Fernandez.“It’s coherent with everything they’ve been doing,” Macri said in comments broadcast on TN. “We are also going to be coherent in pushing for the change that Argentina needs.”Rally EndsZannini, who was a member of the Communist party, was jailed during the 1976-1983 military dictatorship. After the return of democracy, he moved to Santa Cruz province in Patagonia, where he met the Kirchners and worked with them as an adviser as they climbed their way up in national politics.Zannini didn’t reply to a telephone call seeking comment.Primary elections will be held Aug. 9, followed by a general nationwide vote Oct. 25. If needed, a second round will be held Nov. 22 before the new government is sworn in Dec. 10.Macri and Sergio Massa, the leading opposition candidates, have yet to announce their running mates.Argentine government bonds have rallied 13 percent this year compared with a 1.05 percent gain on average in emerging markets, according to JPMorgan Chase & Co. indexes. A Scioli government with key figures from Fernandez’s administration like Zannini however, is bad news for investors, according to brokerage BancTrust & Co.“The presumption that Daniel Scioli will have a much more market friendly posture can be questioned due to the naming of a person with such a Kirchnerism mind toward the market,” BancTrust said in a report.By Camila RussoJune 17, 2015Argentina’s stocks and bonds tumbled after presidential candidate Daniel Scioli’s selection of a close aide to President Cristina Fernandez de Kirchner as his running mate added to concern that she will remain influential and delay changes favorable to investors.Barclays Plc lowered the nation’s debt to neutral, saying in an e-mailed research report that the selection of Carlos Zannini would constrain Scioli, the governor of the Buenos Aires province and the favorite in polls to win the October presidential election. Scioli said Tuesday that Zannini, who has served as legal secretary for 12 years, represents continuity with Fernandez and her predecessor and late husband, Nestor Kirchner.“The market is pricing in that all the imbalances Argentina has to fix — related to the fiscal deficit, excessive subsidies, the overpriced peso and other issues — will be delayed,” said Juan Manuel Vazquez, the head of equity research at Buenos Aires brokerage Puente. “The market was expecting a quick change, and now we’re seeing that the imprint of Kirchnerism is sticking around longer.”Argentina’s benchmark 2033 bonds plunged 2 cents to 98.96 cents on the dollar, the biggest decline since December. The extra yield investors demand to own Argentine bonds over U.S. Treasuries widened the most in major emerging markets, according to JPMorgan Chase & Co.’s EMBIG Diversified indexes. The Merval, the country’s benchmark stock index, slid 1.5 percent, with 9 of its 11 members down.The nation’s American depositary receipts tumbled, with Grupo Financiero Galicia SA falling 6.5 percent, Empresa Distribuidora y Comercializadora Norte down 5.6 percent and Cresud SACIF slumping 4.1 percent.Stocks still have room to fall as much as 20 percent if Fernandez has a strong pull on the new government, Raymond James said in a research note.‘Kirchnerist Influence’“A strong Kirchnerist influence — and the appointment of Zannini could be the first sign of this — would reduce the new president’s room for maneuver, thus hindering the introduction of the corrective measures required to resume economic growth,” Raymond James analysts Federico Rey Marino, Santiago Wesenack and Fernando Suarez wrote.The appointment tightens Scioli’s links with Fernandez and strengthens his chances of winning in the first round of voting Oct. 25, according to Eurasia Group.Zannini, who was a member of the Communist party, was jailed during the 1976-1983 military dictatorship. After the return of democracy, he moved to the Santa Cruz province in Patagonia, where he met the Kirchners and worked with them as an adviser as they rose to power. Zannini didn’t reply to a telephone call seeking comment.By Hugh BronsteinJune 17, 2015(Reuters) – Argentine bonds weakened on Wednesday after presidential front-runner Daniel Scioli chose a loyalist of the current government as his running mate for the October election, a choice that may signal a continuation of policies that have deterred investment.Markets had hoped that Buenos Aires Governor Scioli would use his choice of a running mate to distance himself from the interventionist policies of outgoing President Cristina Fernandez.Instead, he said late on Tuesday that he had chosen Fernandez loyalist and legal advisor Carlos Zannini to run as his vice presidential candidate. Zannini said on Wednesday he had accepted the offer. He said Scioli’s ticket represented “the continuity of a path”.Fernandez, who is constitutionally barred from seeking a third consecutive term, has established a web of currency and trade controls that have frightened off investors who would otherwise be interested in Argentina’s promising shale oil and gas fields, as well as it already powerful grains sector.Argentine over-the-counter discount bonds closed 3.1 percent lower on Wednesday, market sources said.Argentina’s hard currency credits were by far the worst performers on Wednesday, according to the JPMorgan Emerging Markets Bond Index Plus (EMBI+). The yield spread of Argentine dollar-denominated bonds versus comparable U.S. Treasuries widened by 25 basis points. The index as a whole tightened 2 basis points.Scioli is from Fernandez’s Victory Front party, but is considered more in favor of open markets. Scioli has billed himself as the candidate of “gradual change” against the backdrop of a stagnant economy with double-digit inflation and limited access to global credit markets.Eurasia Group analyst Daniel Kerner said Zannini was imposed on Scioli by Fernandez, “given that Scioli needed her full support and endorsement to win the elections.”“We expected her to name someone that would allow her to constrain Scioli, but this was beyond our expectations,” Kerner said. “Zannini is one of her most important and influential advisors.”Whether Scioli as president could or would even want to marginalize Zannini and the Fernandez camp once in power remained an open question.Fernandez is faulted by Wall Street for inaccurate inflation reporting and her failure to put the country’s 2002 sovereign bond default to rest by reaching a deal with holders who rejected the steep cut in repayment terms offered by the country’s 2005 and 2010 debt restructurings.Argentina defaulted again last year after a judge ordered it to halt payment on restructured bonds until a deal was struck with a group of “holdout” investors who had resorted to the U.S. federal courts in their push for full repayment.Barclays downgraded Argentine bonds to neutral on Wednesday. It previously had an overweight recommendation, in part thanks to optimism about a possible settlement with holdout investors in 2016.“But it seems that her political strength has proven high enough to direct, to some extent, the potential next presidency. This leads us to change our stance to neutral,” Barclays said in a note to clients.June 17, 2015Daniel Scioli, the front-running candidate for the ruling Justicialist Party in Argentina’s presidential election, said Tuesday that he wanted Carlos Zannini, an adviser from President Cristina Fernandez’s inner circle, on his ticket as vice president.Scioli, currently the governor of Buenos Aires province, has billed himself as the candidate of “gradual change” against the backdrop of a stagnant economy with double-digit inflation and limited access to global credit markets.Yet his choice of running mate for the October presidential elections suggests he might steer a course more in line with Fernandez’s unorthodox policies than many supporters had hoped.Some analysts said it could just be a strategic ploy to win over Fernandez loyalists.Zannini, legal and technical secretary to the president, rarely makes public appearances but has been broadly described in local media as Fernandez’s right-hand man. Fernandez herself is constitutionally barred from a third consecutive term.The 60-year-old lawyer was nominated in 2003 by Fernandez’s predecessor and late husband, Nestor Kirchner.“I spoke with Cristina and gave her my point of view. I had said I wanted someone who would complement me in experience,” Scioli told TV broadcaster C5N.Candidates are required to list running mates when they register for the August primary by midnight Saturday.“[This choice] could cast doubts about Scioli’s willingness or ability to change the current economic policy,” said Ignacio Labaqui, who analyzes Argentina for emerging markets consultancy Medley Global Advisors.Argentine equity and bond markets have rallied in recent months on the expectation of such change.Scioli, who has pulled ahead of his two main rivals in recent polls, is walking a tightrope in order to win the support of both Fernandez loyalists and undecided voters demanding change.A moderate within the broad Peronist movement that has ruled Argentina for all but eight years since the return of democracy in 1983, Scioli is more pragmatic and pro-market than Fernandez and says policy changes are needed to get the economy moving.But the jury is out on how much change he would truly bring about. He has mostly been vague about specific policies.Argentina’s next president will inherit a broken economy by most standards: inflation running at 20 to 25 percent, low foreign reserves, a gaping fiscal deficit fueled by hefty subsidies, negative real interest rates and a debt default.Alejo Czerwonko, emerging markets economist at UBS Wealth Management, said Scioli’s choice of running mate made sense politically because he needed Fernandez’s endorsement. He also said the choice did not necessarily reflect Scioli’s future policies.Scioli’s behavior, “if and when he sets himself free” from Fernandez and controls government resources himself, “remains anyone’s guess,” Czerwonko said.By Dimitra DeFotisJune 17, 2015As the ballot for president in Argentina is taking shape, outgoing President Cristina Fernandez de Kirchner may hold most of the cards.Getty ImagesArgentina’s main presidential candidate from the incumbent party, Frente para la Victoria or VpV, announced a candidate Tuesday who is — according to “local consensus” — imposed by President Fernandez de Kirchner, according to Citi’s Latin America economics desk.Daniel Scioli, the main presidential candidate for the incumbent party, announced that Carlos “el Chino” Zannini will be his vice-presidential running mate. Citi writes:“Zannini is part of CFK’s [Cristina Fernandez de Kirchner’s] small inner cycle, together with her son Máximo Kirchner and Eduardo “Wado” de Pedro. Moreover, he has been close to the Kirchner family since its political beginnings in the Province of Santa Cruz in the 1980s. It is hard to imagine a “Kirchnerista” more “Kirchnerista” than him … He is also said to be one of the biggest supporters of La Cámpora, the political youth organization that has gathered significant influence during CFK’s tenure … In sum, yesterday’s news lowers the likelihood of a substantial change under a Scioli administration significantly, we believe. On the contrary, it shows that the Kirchnerism aims at keeping as much influence as possible … With the deadline to set the candidates coming closer (June 20), now the focus will shift to what role will CFK play in the elections, and if she will run for an elective position.”8. OFFICIAL ARGENTINE INFLATION FIGURES POINT TO SLIGHT DECELERATION IN MAY (IHS Global Insight Daily Analysis)By Paula Diosquez-Rice, Mario Guillen17 June 2015According to Argentina’s National Statistical Office (Instituto Nacional de Estadística y Censos: INDEC), consumer inflation was at 1.0% month on month (m/m) and 15.3% year on year (y/y) in May.The fastest increase in prices was observed in the clothing category, up 2.0% m/m, followed by household and basic services, up 1.6% m/m, and education, up 1.3% m/m. The leisure category posted a fall of 0.3% m/m. Meanwhile, producer inflation rose 1.4% m/m and 13.5% y/y.The inflation figures presented by the opposition in Congress point to higher levels, with prices in May rising 2.0% m/m and 28.76% y/y. Meanwhile, Torcuato di Tella University reports that inflation expectations for the next 12 months posted a slight reduction, standing at 28%, while average expected inflation in annual terms will fall to 27.5%, the lowest level since 2008.Relative stability in the foreign-exchange market and the perceived deceleration of inflation have improved expectations for short-term price trends, but uncertainty remains a key issue deterring investment from rising in the country. Such decisions are likely to remain on hold until after the presidential election in October.Debate over economic policy remains heated as talk points to a gradual dismantling of macroeconomic distortions rather than shock therapy, but increased spending before the election is likely to worsen the country’s already high deficit and increase the risk of drastic corrections.An easing of Argentina’s economic woes through a positive external shock remains unlikely, as the region continues to show lacklustre growth and commodity prices remain low. Although enthusiasm persists over the country’s natural resources and their economic potential, they should not be a substitute for much-needed structural economic reform.By Joseph CotterillJune 18, 2015The governments change, the debts change. The rhetoric, on the other hand…In light of the Greek prime minister’s recent ‘humiliation’ speech and the rather heated reaction it’s had among official creditors (and private bondholders) – we thought we heard some historical echoes. So we took a quick look through the archives.1) The anti-imperialist/romanticBut here we are, we suffer a circumstance, a reality, to which… we are going to give an adequate response, a realistic response… in which we pledge our moral, physical, historical presence… to what we owe to the western banks, and how we confront the IMF.So we will pay, but under what conditions we are going to do this, that depends on our anti-imperialist capacity not to be subjugated by the bad creditors…We want to clarify, properly and definitively, what that means… all servicing of external debt, including to financial institutions and countries, and commercial banks, will not take up more than 10 per cent of our total exports… paying 10 per cent means changing the terms, paying 10 per cent means varying the interest rates, paying 10 per cent means regaining independence and sovereignty. So far we have been ruled from without; now we begin to rule for ourselves.– Alan Garcia, President of Peru, speech to the United Nations general assembly, September 19852) The legalistic/pedanticI do not feel it is fair to define the so-called external debt of Argentina as indebtedness contracted by the Argentine state to external creditors, deserving of defining our position with the phrase: we should honour the assumed commitments. I feel that things are not so.We cannot forget that what some crudely call the so-called external debt, at least partially, is the greatest economic fraud ever seen in the history of Argentina (applause)…Let me be very clear; Argentina’s external debt has been paid without complying with the constitutional requirement that says it is given to Congress to regulate the payment of the nation’s external and internal debt (applause)…Let’s take the bull by the horns, let’s talk about the external debt. First I declare that the Argentine state will suspend paying the external debt (prolonged applause and shouts of Argentina, Argentina). This does not mean a repudiation of the external debt, it does not signify a fundamentalist attitude. Quite on the contrary, it is the first act of a government that has a rational stature in giving the issue of the external debt its proper treatment…Transparency is done, it is not proclaimed. Gentlemen, the books will be opened to you (applause).All monies that are provided in the budget for paying the external debt, while payments are suspended, will be used without hesitation and without exception, in plans of job creation and social progress (applause)…– Adolfo Rodriguez Saa, President of Argentina, speech to the Argentine congress, December 20013) The paranoid/messianicThe institutions’ persistence that we follow a program of austerity that has obviously failed, and their insistence on measures that they know we won’t accept cannot simply be a mistake, or a result of overzealousness.Chances are, their insistence serves political motives, as well as a political plan to humiliate not only the Greek government but also, our country…If the objective is to continue with an IMF-inspired program–widely acknowledged as having failed–and without addressing the debt, then we are left with no choice.We are obliged to not capitulate…It should be noted that the IMF, as well, bears criminal responsibility for Greece’s current state of affairs.After all, it was the IMF that erred on the multipliers, in its calculations on the recession.And while the IMF has apologized, this has done little to help those who lost their jobs to live a life with dignity, nor did it feed the thousands of poor and socially excluded.It did not increase pensions nor did it reopen small businesses that had gone under.The apology was merely a cynical confession made by technocrats that had no consequences.The time has come for the IMF’s proposals to be judged. And to be judged publicly.Not by us, but by Europe itself.The time has come for Europe to seriously discuss Greece’s future—and the future of the Eurozone itself.Does it want, by insisting on its stance, to lead a country and its people to humiliation and impoverishment or does it want to reach an agreement and to further democracy and solidarity?..– Alexis Tsipras, Prime Minister of Greece, speech to the Syriza parliamentary group, June 2015The difference, of course, is that Greece hasn’t actually defaulted yet, unlike in the Peruvian and Argentine examples. In Peru’s case, that default included IMF loans.On the other hand, if the Greek default announcement comes — the IMF and its fellow creditors will know what to look for.