Argentina's Kirchner Snubs Fiorina, IMF, for `Political Appeal'

Oct. 1 (Bloomberg) -- When Carly Fiorina, Hewlett-Packard Co.'s chief executive officer, went to Buenos Aires to visit Argentine President Nestor Kirchner in July, he kept her waiting almost an hour.

Fiorina -- who runs the world's No. 2 personal-computer maker -- left without seeing him, says Aldo Leporati, spokesman for Hewlett-Packard in Argentina, where the company has had sales offices for more than 30 years.

``Kirchner has managed to anger the investment community,'' says Alejandro Reynal, chief executive of MBA Banco de Inversiones SA, an Argentine investment bank in Buenos Aires. ``Investors are in a gigantic wait-and-see.''

Since his April 2003 election, Kirchner, 54, has refused to negotiate with bondholders seeking compensation for defaulted government debt, has declined to help utilities made insolvent by a currency devaluation in 2002 and has blamed the International Monetary Fund, which will discuss Argentina's debt at its annual meeting this weekend, for the country's woes.

Kirchner's standoff with creditors, investors and the IMF, which suspended a $13.3 billion loan accord in July, is stunting a recovery in South America's second-biggest economy, says Reynal, 59, whose bank is majority-owned by San Mateo, California- based Franklin Resources Inc. and has former U.S. Treasury Secretary Nicholas Brady as an adviser.

`Only Offer'

The IMF withheld a loan payment to Argentina in August after the country failed to move forward on negotiations with bondholders over $100 billion of defaulted debt. The government in June proposed paying investors 25 cents per $1 of defaulted bonds. Kirchner says the offer isn't negotiable.

``The current offer is the only one we will make,'' Kirchner said in a Sept. 22 speech at the Council of the Americas in New York. ``It's the offer that will go to the markets.''

A day earlier, he told the United Nations General Assembly that IMF demands to reduce government spending would create more poverty in a country where half the population of 37 million doesn't have adequate food, clothing or housing.

``We will see an increase in the number of poor people if we obey them again,'' said Kirchner. He blamed the IMF for encouraging the government to keep the peso at par with the dollar and to borrow overseas before the country plunged into recession in 1999. ``The ones that need the most structural reforms are the international lending organizations,'' Kirchner said.

Political Tool

George Estes, 49, who helps manage $3.5 billion in emerging- market debt, including Argentine bonds, at Grantham Mayo Van Otterloo & Co. in Boston, says Kirchner's use of the showdown with creditors is a political tool. He is preventing the country from reaching an agreement with bondholders and from regaining the confidence of international investors, Estes says.

``Kirchner has chosen to make his relation to investors a key element of his political appeal to local people,'' says Estes. ``That is preventing him from taking a more realistic approach to the debt issue.''

IMF Managing Director Rodrigo de Rato, 55, says Argentina needs to regain the trust of international investors. Argentina, Brazil and Turkey account for 70 percent of the fund's $107 billion of outstanding loans.

``Argentina needs a friendly environment, legal, political and social, for new investments,'' de Rato said in a Sept. 20 speech to the Council on Foreign Relations in New York. ``It needs to regain a normal status in the world economy and regain its relationship with creditors.''

`Respect'

Kirchner has also snubbed political rivals and even cabinet members. Felipe Sola, governor of the province of Buenos Aires, which accounts for 40 percent of the country's GDP, has complained Kirchner either refuses to meet with him or is late for meetings. ``What I ask from the president is respect,'' said Sola, 54, in a May 26 interview on TodoNoticias television.

Former Justice Minister Gustavo Beliz, 42, said Kirchner tries to `humiliate everybody,' a day after he was fired for accusing the intelligence service of failing to prevent street violence. ``Kirchner can go 15 days without answering a personal phone call from a cabinet member,'' Beliz said July 26 on Radio Mitre.

Argentine Economy Minister Roberto Lavagna is slated to meet IMF officials at the fund's annual meeting in Washington, according to IMF spokesman Thomas Dawson.

Argentine Lower House Majority Leader Jose Maria Diaz Bancalari, 60, says Kirchner has good reason to be wary of the IMF and business executives.

Slowing Growth

``It's not a whim or an ideological position,'' Bancalari says. ``Adopting the IMF's recipes has led Argentina into crisis. The president wants real and genuine investment, not speculative capital and vulture funds.''

Without foreign investment, the recovery in Argentina's economy, which grew 8.7 percent last year after contracting a record 11 percent in 2002, is running out of steam, says MBA's Reynal.

``The country is heavily dependent on foreign direct investment,'' says Reynal. ``To play the game differently is very dangerous.''

The amount spent by international companies to buy, equip or expand businesses in Argentina fell to just $100 million last year from a record $22 billion in 1999, according to the Washington-based Institute of International Finance.

Hewlett-Packard, which has more than 800 employees in Argentina, still has not regained the level of sales it had prior to the country's default, said spokesman Leporati. It is currently hiring for its call centers, Leporati said.

Investment

Palo Alto, California-based Hewlett-Packard is the country's biggest seller of computer desktops, notebooks, printers and servers, according to IDC, a Framingham, Massachusetts-based technology and telecommunications research company.

Hewlett-Packard's Fiorina, 50, told journalists July 27 in Buenos Aires they should ask Kirchner why their meeting didn't take place, La Nacion newspaper reported. Hewlett-Packard spokesman Leporati and Kirchner spokesman Miguel Nunez declined to comment on why the meeting didn't happen.

Argentine businesses haven't caught up either. An August survey by the government's statistics institute showed that only one in 25 Argentine companies had plans to invest at home. The institute didn't say how many companies it surveyed.

``Kirchner doesn't deserve the credit for the growth we are seeing,'' says Diego Adamovsky, 40, owner of Buenos Aires-based Linea Globito SA, the country's third-largest producer of baby clothes. ``And when you owe so much, you should act more humbly than he does.''

Soybeans, Tourism

Argentina's recovery since 2002 was fueled by rising soybean prices, increased tourism and an expansion of industrial production. World soybean prices reached a 15-year high of $10.64 a bushel on April 5.

A 70 percent decline in the peso in 2002 made locally made goods cheaper than the imported products that had flooded Argentina in the 1990s, when the peso had been pegged at par with the U.S. dollar. It now trades at about 3 pesos per dollar.

The rate of growth has started to slow. In the second quarter, gross domestic product grew 0.5 percent from the previous quarter, the smallest quarterly expansion since the end of the recession in 2002. Soybean prices have fallen to $5.29 a bushel as world production has increased. The government forecasts the economy will grow 7 percent this year and 4.5 percent in 2005.

Unemployment

Argentina's jobless rate rose in the second quarter this year to 14.8 percent from 14.4 percent in the previous quarter, the first increase after six quarters of declines. The rate doesn't include heads of families who receive government handouts. If they were counted as jobless, unemployment would be more than 19 percent.

Kirchner, in a speech Sept. 9 at a rally in the outskirts of Buenos Aires, blamed the slowdown and rising unemployment on a shortage of energy. The cause was lack of investment by utility companies, he said, including Madrid-based Repsol YPF SA, Rio de Janeiro-based Petroleo Brasileiro SA and Pan American Energy LLC, a joint venture of London-based BP Plc and Bridas Corp. of Buenos Aires.

Kirchner in May slapped taxes of as much as 20 percent on exports of gas and oil.

``If we decided to increase taxes it is because in Argentina we're finished with burdening the weak and charging the Argentine people for investments that were not carried out,'' Kirchner said in a May 11 speech to executives of utility companies, including Repsol Chairman Alfonso Cortina. ``Those who didn't fulfill their obligations have to be made responsible.''

Utilities Sue Argentina

After meeting Kirchner in New York on Sept. 23, Cortina said Repsol, Europe's fifth-largest oil company, would spend more in Argentina if the rules for investment were better.

``The legal and fiscal frameworks have to be consistent with those of other countries,'' Cortina, 60, said at a press conference.

More than 20 utilities, including Sempra Energy and Spain's Endesa SA, are suing Argentina in a World Bank court, the International Center for Investment Disputes, saying the government won't allow them to raise prices to offset losses caused by the peso's decline.

The companies, which invested more than $25 billion in Argentina's public services in the 1990s, have been insolvent since the peso depreciated 70 percent in 2002.

They have asked the government to allow price increases and new contracts to let them recoup their investments and resume payments on defaulted obligations. Under the suspended IMF loan program, Argentina committed to renegotiating about 60 contracts with utilities by mid-year.

`Resisting Reforms'

``Argentina has failed to meet major commitments under the IMF deal and is resisting reforms,'' says Rafael de la Fuente, 35, Latin America economist at BNP Paribas SA in New York.

A lack of job creation, rising crime and protests that clog the streets of Buenos Aires have caused Kirchner, who was governor of the province of Santa Cruz before taking office in May 2003, to lose popularity, according to Buenos Aires-based pollster Catterberg & Asociados.

A nationwide survey of 800 people in early September by Catterberg showed Kirchner's popularity rating had dropped to 58 percent from 80 percent in February. The poll had a margin of error of 3.5 percentage points.

Kirchner's antagonism toward utilities and international companies is aimed at gaining popularity, particularly among the poor, says Rosendo Fraga, 52, director of Buenos Aires-based polling company Nueva Mayoria.

``Kirchner needs to say things that are perceived as acts of authority,'' says Fraga. ``He has an obsession with image and that takes precedence over actions. That may have a short-term impact in polls but it does have long-term consequences.''

To contact the reporter on this story: Daniel Helft in Buenos Aires dhelft@bloomberg.net

Last Updated: September 30, 2004 23:10 EDT