Policy changes in Argentina are generally preceded by months of statements from government officials and academics only loosely associated with the "Kirchnerista" inner circle. Once ideas have been floated and reach an appropriate level of political support, the executive branch will come out in favor of the shift. This was essentially the pattern during the buildup to the eventual nationalization of the Argentine oil and natural gas company YPF.
Eliminating Presidential Term Limits
Rumors of a constitutional amendment related to term limits first surfaced in the run-up to the October presidential election, but pundits and the media largely criticized such a step. That tone has begun to change as columnists — including philosopher and op-ed columnist Ricardo Forster — and governors of provinces, including Neuquen, San Juan and Mendoza, began to express support for the idea in the past several weeks.
The exact manner in which the Fernandez government would pursue a change is not entirely clear. The most likely scenario is that Fernandez will have to wait until 2013 legislative elections to secure two-thirds support in the legislature. Alternatively, she might be able to build a coalition able to make the change more quickly. If Fernandez deems her own popularity to be sufficient, she could push for a referendum, although with the economy faltering this route will become increasingly unfavorable.
A push to ensure the continuation of the Fernandez government has its roots in the original Kirchnerista government, namely, that of Fernandez's late husband, Nestor Kirchner. Kirchner and Fernandez originally had appeared to be setting themselves up to take turns holding the presidency. Together, the two would legally have been able to hold power for 16 years. But Kirchner's death in October 2010 ended those plans, forcing Fernandez to explore new options for maintaining control of the presidency, which is far and away the most powerful position in Argentina. She ultimately built a new set of political alliances to attain her policy objectives.
Sharing Revenue With the Provinces
Other signs are emerging suggesting that the central government may be willing to increase revenue sharing with provincial governments to win support from the provinces for the elimination of presidential term limits. According to media reports, Fernandez has met personally with governors to discuss revising the fiscal pact between the federal and provincial governments that limits revenue sharing to 25 percent of total revenues.
Argentine political history has been characterized by a continuously tumultuous relationship between the provinces and the central government. In the wake of independence, Argentines fought several civil wars between those who sought to centralize power under Buenos Aires and those who sought power for the provinces at the expense of the federal government. Key to this debate has been the redistribution of revenues from the central government to the provinces. As a result of changes to the fiscal pact made in 1992 by the government of former Argentine President Carlos Menem, Argentine provinces receive 25 percent of total federal tax revenues.
This rate was the lowest in 50 years, and the strain on provincial finances — which are heavily reliant on government funds — is beginning to show. With the overall economic climate in Argentina becoming more difficult, provincial governments all over Argentina have faced budget shortfalls that have resulted in public unrest and an inability to fulfill spending commitments. Some have turned to international markets, but those bond issuances will have to be paid back next year, effectively postponing the inevitable budget crunch by only a year.
Increased revenue sharing from the central government would therefore represent a huge boon for governors facing difficult political questions at home and would prove a powerful tool for the Fernandez government for gaining additional political support for changing election rules. The downside, however, is that increased revenue sharing does not necessarily mean that Argentine governments as a whole will see increased revenue.
Buenos Aires remains largely isolated from international capital markets and reliant on taxes to finance its fiscal agenda. Furthermore, with the nationalization of YPF, the central government has only increased its already high spending commitments. Severe restrictions on imports have produced an official trade surplus of $7.3 billion in just the first half of 2012, putting Argentina easily on track to meet the goal of a $10 billion surplus by year's end. However, with oil and natural gas production having fallen precipitously in recent years, the country's main export revenue will have to be derived from agricultural goods. The central government is using monetary expansion to finance fiscal goals, but the effect will be to spur additional inflation, putting pressure on the value of the Argentine peso and ultimately on the central bank.
With all of these dynamics in play, increased wealth transfers to the provinces may well provide a short-term boon for the provinces, but it might ultimately push the central government to put increasing amounts of fiscal responsibility for public goods into the hands of the provinces because the federal government will be unable to afford them. Without substantially addressing the challenge of high levels of spending, there is no redistribution of wealth to the provinces that can adequately affect the fiscal balance in Argentina. Though the Fernandez government can use the economic pain of the provinces to make short-term political gains and with an eye on staying in power, this arrangement has its limits. This is because if not addressed, the underlying economic factors at play will ultimately undermine Fernandez's ability to be re-elected.
