MercoPress. South Atlantic News Agency

Argentina confident it can cope with a “global contraction”

Minister Feletti says “global demand can be replaced with regional demand”

Argentina has the ability to sustain its economic growth amid a slowdown in the global economy, thanks to domestic demand and trade with other South American nations, said Deputy Economy Minister Roberto Feletti.

“We know that if faced with a contraction in global demand, Argentina has the ability to replace external demand with domestic demand and has the ability to replace global demand with regional demand” Feletti said in an interview with Buenos Aires television channel C5N.

The government's 2012 budget forecasts economic growth of 5.1%, down from an estimated 8.2% this year and the 9.2% expansion posted in 2010.

Feletti said the budget assumed growth rates in developed economies of less than 1%, “not a recession, but a scenario of global stagnation”.

Argentina managed to weather the 2008-09 global crisis reasonably well, thanks to the nationalization of the private pension savings industry and making use of Central bank reserves, which gave the government the funds to provide fiscal stimulus to an ailing economy.

President Cristina Kirchner is expected to easily win reelection Oct. 23, helped in large part by a booming economy that has pushed unemployment rates to multiyear lows.

The budget bill forecasts federal spending increasing 18.8% to 505.1 billion Pesos (120 billion dollars) and revenues rising 22.5% to 506.6 billion Pesos in 2012.

Those estimates could prove too low in light of the Kirchner administration's habit of using extremely conservative forecasts in its budgets in order to have extraordinary revenue that it can spend with little oversight by Congress.

Feletti defended the estimates, saying it would be irresponsible to put the government in the position of having to seek financing abroad in the event its spending forecast were too high.

The budget bill puts the government's total financing needs at 241.3 billion Pesos in 2012, which includes 35.9 billion Pesos to pay multilateral organizations and bond holders.

Investment banks and economists say the government will have to sell between 3.5 billion and 9 billion dollars in bonds next year as domestic sources of financing prove insufficient. The final amount will depend to a large degree on whether Argentina reaches a deal to settle its outstanding debts with the Paris Club of creditor nations.

According to the government's 18-K filing last week with the US Securities and Exchange Commission, Argentina owes the Paris Club 6.3 billion dollars in principal and interest as well as an estimated 2.6 billion dollars in penalty interest.

Next year's financing sources include, “primary surplus, new debt from multilateral organizations, intra public sector issuances, debt issuances in the market and liability management operations aimed at alleviating debt services,” according to the 18-K filing.