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Argentina President Cristina Fernandez Re-election Fueled By Economic Boom

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CRISTINA FERNANDEZ
AP

BUENOS AIRES, Argentina — Argentina's vice president-elect is a hoodie-wearing, Harley-riding rock 'n roll guitarist who plays up the pace of the country's prosperity in every financial summit he attends as economy minister.

President Cristina Fernandez chose Amado Boudou as her running mate not just because of his youthful appeal, a key factor now that she's a 58-year-old widow limited to a second term in office. Boudou also was a key player in several unorthodox decisions, such as nationalizing the pensions and using foreign reserves to pay down debt, that enabled her to spread the country's wealth among the poor and working classes.

And this, in turn, helps explain how Fernandez came to be re-elected Sunday with perhaps the widest victory margin in Argentine history, and 54 percent of the vote.

How did she and Boudou do this, in a world where leading economies are slowing and smaller countries are swallowing unpopular austerity measures in exchange for financial lifelines?

Since Fernandez and her late husband and predecessor Nestor Kirchner moved into the presidential palace in 2003, they presided over one of the longest periods of economic growth in the country's history – growing twice as fast in real terms as the economic powerhouse of Brazil, and faster than any other nation in the world save China and India, according to the Washington-based Center for Economic and Policy Research.

The Kirchners also cut the wealth gap – the difference in income between the 95th and 5th percentile – nearly in half by nearly tripling social spending in real terms, economist Mark Weisbrot said.

They rebuilt Argentina's industrial capacity after the 2001 economic collapse, creating jobs, lowering poverty and putting disposable income into many more pockets. They did it by either trying to mask or ignore the high inflation their spending encouraged, preferring to keep the economy moving. As a result, shops are open, business is thriving, and people are buying new cars and televisions like never before.

How long this kind of spending can be sustained is an open question. La Nacion, Argentina's leading newspaper, warned in a front-page opinion column Monday that the nation's economic engines are running dry. Socialist Hermes Binner, the second-place finisher, said it's not clear whether Argentina can withstand a coming global crisis.

On the other hand, Argentina still has near-record foreign reserves of more than $48 billion, thanks in large part to risky moves by Fernandez and her long-haired, 47-year-old economy minister, a confirmed bachelor with two motorcycles, a growing collection of electric guitars and a live-in TV journalist girlfriend who is almost half his age.

While Boudou pursued the youth vote, the government was able to use funds generated by his decisions for "social inclusion," increasing pensions, child welfare and the minimum wage by about 25 percent last month to keep up with price increases. Fernandez even expanded the $3 billion family support program she created by presidential decree so that poor mothers get cash starting early in their pregnancies.

All this has had a huge social impact: Among other things, public school classrooms are packed with children who would otherwise be working or on the streets.

They were able to do this, fundamentally, by rejecting the kind of orthodox economic advice that has made the "Occupy" marchers so indignant worldwide.

Boudou has insisted to the Club of Paris, a group of lender nations including the U.S. to whom Argentina still owes more than $6.5 billion, that the government would accept no conditions in exchange for a new payment plan, even as the same lenders force austerity measures on Greece and other suffering economies.

"When a society expresses itself and decides in free and democratic elections to adopt a decision, this decision must be respected," Fernandez warned in her victory speech Sunday night, referring to those who would return Argentina to its 1990s model of neoliberal conservatism.

It was Boudou who suggested to the Kirchners before becoming economy minister that they should renationalize the pension funds that had been privatized in the 1990s, a decade when the World Bank and International Monetary Fund had encouraged Argentina to take on impossible debts, leading to its world-record 2001 default. The private funds were forcing Argentine taxpayers to foot 60 percent of miserly minimal pensions, even as the funds took profits out of the country.

Fernandez took Boudou's advice and in 2008, signed a law seizing $23 billion in private pension funds. This infuriated some investors, invited no end of attacks by the news media and made her even more of a pariah among financial analysts. But it also created a vast credit pool from which to invest in projects "made in Argentina," and provided an alternative to foreign debt, which they couldn't assume without conceding to an independent examination of Argentina's official inflation numbers. That, in turn, would have surely increased pressure for budget cuts, leading to a voter backlash.

"This is why I value Amado Boudou so much," Fernandez explained in her authorized biography, published in August. "In two years, we've duplicated the funds that they built up in 12. It was an impressive business deal. Many of the things we've done were already thought of by others, but they didn't have the guts to act."

Boudou also was the point man for Fernandez's ouster of the Central Bank president, which enabled the government to use its reserves to pay off foreign debts. Opponents predicted it would weaken Argentina's ability to support its currency. But reducing the debt load freed up money for more productive uses, in turn building reserves. Argentina now has accumulated much more than it had to cushion against previous global turbulence.

When the new Congress is sworn in on Dec. 10, Fernandez, Boudou and his yet-to-be-named replacement as economy minister will benefit from narrow majorities in both houses for the first time since 2009's midterm elections. The president will be able to get laws passed, rather than having to invoke her emergency decree power to get things done.

This is one advantage Fernandez has over President Barack Obama: Nearly her entire congressional opposition adheres to centrist or leftist parties. The only political bloc promoting ideas remotely similar to U.S. conservatives is the Pro party, led by Buenos Aires Mayor Mauricio Macri, but it has just 11 seats in the lower house and none in the Senate.

It remains to be seen if Macri can now rally what's left of a divided opposition.

"Clearly the fragmentation has been an enormous error: Half or more of the Argentines were open to hearing a proposal for change, but it had to be articulated," Macri said Monday.

Fernandez's agenda may include changes in banking regulations to more tightly control currency flows, and a union-backed proposal to require corporations to share 10 percent of their profits with their employees, which if passed could force businesses to open their books in a country where tax evasion still runs rampant.

Such moves would surely raise new complaints that Fernandez is failing to ensure stability for investors.

Her likely response: Argentina is open for any investor willing to meet her government's terms.

"I'm not a genius or a fool," Fernandez said Sunday night, speaking of those opposed to her populist approach. "But I know that these people are the minority – powerful, but a minority. It depends, therefore, on the great majorities, comprising our workers and our middle classes, to not be knocked off track as has happened to us so many times in our history, ruining projects that served the nation. They are still out there, those who knocked us down, many times directed from abroad."

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Michael Warren can be reached at http://www.twitter.com/mwarrenap

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