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POLITICAL CLIMATE CLIMATE POLITICAL REPORT

strengthen and federalize the public contain the impact of COVID-19 and administration; and advancing a women’s the strict lockdown implemented in

and reproductive rights agenda—has been March, combined with the

ARGENTINA

– mixed. government’s limited ability to seek financing in the market, exacerbated

PCR PCR On the one hand, the government the fiscal deficit and put pressure on

successfully renegotiated Argentina’s the exchange rate. As a result, despite

foreign debt with private bondholders having successfully renegotiated its debt

(see here for background), giving the with private bondholders earlier this year, government fiscal space in the short- Argentina experienced periods of very high term as it seeks to push the country currency pressures, leading the out of a multi-year recession. Now, the government to establish strict capital government has started talks with the controls and adjust import controls to International Monetary Fund to restructure defend dwindling Central Bank reserves debt with the multilateral organism (see and prevent a major devaluation of the below). Additionally, 2020 ended with the peso. Recent weeks have been Senate approving a law to legalize characterized by adjustments to these abortion (see sidebar on next page for measures as the government seeks to more details), which the president had balance the need to protect reserves said was among the government’s top and limit access to the exchange priorities in the annual speech that market with the need to attract FDI inaugurates the start of the normal and allow companies access to goods legislative year in March (see March PCR used in productive processes. for background). Electoral coalition fails to consolidate as Nevertheless, the COVID-19 pandemic governing coalition put much of the government’s initial agenda on hold, and priorities such as As the government concludes its first efforts to reform the judicial system year in office, it is clear that the and advance with a social and diverse electoral economic agreement saw scant coalition has struggled to work as a progress as the government instead governing coalition, and that focused on containing the public President Alberto Fernández has not health crisis. Meanwhile, the COVID-19 yet managed to consolidate his crisis and the strict lockdown implemented leadership or assume the undisputed in March pummeled the already struggling position as leader of the coalition. economy, which is estimated to have contracted by between 10.9 and 11.7 In mid-December, the main political percent in 2020. Additionally, figures of the governing coalition unemployment reached 11.7 percent in participated in a political act within the the third quarter. During the same framework of an announcement by the quarter, poverty reached 44.2 percent governor of Province as a according to the latest measurement of sign of partisan unity on the eve of an the Argentine Catholic University’s electoral year, one of the few joint public Observatory of Social Debt. appearances of President Alberto Fernández and Vice President Cristina As a result, the government focused on Fernández de Kirchner (CFK) throughout promoting economic bridge measures, the year. While both made references to through price freezes and emergency the significance of maintaining a united assistance programs targeted at front, CFK subtly criticized some of the vulnerable populations and struggling national ministers, reawakening rumors companies (see here for background). about cabinet shuffles. However, the increased spending to

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The appearance of the main Frente de a ban on corn exports through March 1, Todos coalition members together had changed the ban to a daily limit of 30,000

political salience on the eve of an tons, and then lifted the measure

ARGENTINA

– election year (see below for details), completely. The changes reflected a sending a signal that they recognize desire to not raise tensions with the

PCR PCR their differences—which no one is powerful agricultural sector, as well

denying—but know that their chances as differences in preferred approach

of performing well in the elections within the government. In this sense, it

require remaining united. Nevertheless, echoed the failed attempt made last year CFK took the opportunity to assert her authority. Although CFK continues to Argentina legalizes abortion in milestone for country, region largely remain in a background public role and highlight that Alberto Following a marathon session, Argentina legalized Fernández is the president and abortion early on the morning of December 30, a decision maker, she has control of key victory for the feminist grassroots movement institutional leverages, including the popularly referred to as the greentide (due to the use of a green handkerchief as it’s symbol). The majority of the ruling bloc in both bill, which was presented by the president, passed chambers of Congress, and the most with 38 votes in favor and 29 against in the Senate, electoral support in the key Buenos and ensures free access to abortion up until the Aires metropolitan area. This gives her 14th week of pregnancy

supporters influence in the government. The bill was presented in December, passed in the Her comments at the event echoed Chamber of Deputies by mid-December and previous questions about “funcionarios que approved in the Senate before the end of the no funcionan” (“public officials that don’t month. The vote was expected to be tight, but the bill ultimately passed with a safe margin as work''). undecided lawmakers broke in favor of the bill, which was also discussed alongside a bill that aims While President Fernández and Cabinet to promote maternal and infant health. Chief ruled out changes, A bill to legalize abortion was first voted on in 2018 internal divisions and missteps within the under then-President Mauricio Macri, but after government coalition have led to rumors passing in the Chamber of Deputies failed to gain about shuffles in key areas, including the the necessary votes in the Senate. The result Economy and Foreign Affairs ministries, reflected an intense campaign by the Catholic Church and Evangelical movements, and strong and the Central Bank. However, to date opposition to the bill in many of Argentina’s the first and only major cabinet change provinces, especially those in the north, which have was the resignation of María Eugenia more representation in the Upper House. While Bielsa as Territorial Development and neither the governing and opposition blocs voted with a uniform position on the controversial issue, Habitat Minister in mid-November due to this bill benefitted from the explicit backing of the criticism regarding mismanagement of president. urban development and housing government plans, key for economic Legalizing abortion was one of President Fernández’s campaign promises, and the passage of reactivation. She had been appointed by the bill fulfilled a government promise to an active President Alberto Fernández and has now part of its base after a difficult year. The success of been replaced by , former the bill also reflects the consistent advocacy of the mayor of the municipality of Avellaneda in historical National Campaign for Legal Abortions, which has continually introduced bills to legalize and a political ally abortion to the national Congress, and other of CFK. members of Argentina’s women and reproductive rights movements that have helped change public Several recent incidents are opinion on the issue. In Latin America, the only other countries with legalized access to abortion are illustrative of the internal tensions in Uruguay, Cuba, Guyana and parts of Mexico. This the coalition and its broader makes Argentina one of the first and the largest coordination difficulties. For example, countries in Latin America to fully legalize abortion, in the span of approximately a week in a milestone for women’s rights that may pave the way for other countries in the region to follow suit. early January, the government announced

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to intervene in agricultural company coming months given the susceptibility of Vicentín (see here for background), which Argentina’s economy to external events as

was pushed by the Kirchnerists, but faced well as the high interdependence between

ARGENTINA

– pushback and was ultimately retracted by the economic and political situations of the the president. In another example, in mid- country. The outcome of the government’s

PCR PCR January, the government announced it negotiations with the IMF will play a major

would implement a nationwide mandatory role in determining the country’s economic

curfew and then abandoned the measure path. Other external factors such as a

following pushback from both the fresh COVID-19 outbreak could complicate opposition and from within its own the scenario and bring new risks. coalition. Argentina begins COVID-19 vaccination These incidents are illustrative of one campaign amid concerns about new of the key challenges facing the outbreak government, which is the inability to resolve differences between the In part, the government’s coalition’s members, or successfully assumptions about the ability to coordinate more generally. The role of return to growth and stabilize the the president and high-level decision economy in 2021 rely on bringing the makers in the coalition should be to COVID-19 pandemic under control in arbitrate between the different parts of the order to avoid a return to strict coalition. However, the president has lockdown measures that stymie failed to define clear leadership, and economic activity. on many recent occasions has not seemed like the leading decision Recent months saw a shift away from maker among members of his own strict lockdown measures, and in early government. In this respect, it is November, the Buenos Aires metropolitan important to note that this is the first time area left the mandatory social isolation that Peronism has tried to govern as a phase for the first time after eight months. coalition, and not a front. Moving forward, Now, social distancing restrictions the president will need to construe his announced in mid-December are authority and assert leadership in order to currently set to last through January allow his government to better lead the 31, and are likely to be extended. public agenda. These include the use of facemasks indoors, indoor dining restrictions and Outlook: 2021 promises to continue to banned large-scale social events. be challenging However, as cases, which were After a very difficult 2020, there is declining through early December, hope that the economy will finally show a fresh uptick, new restrictions return to growth in 2021. Most have been implemented. Over the last independent economic projections week, daily cases have consistently anticipate that Argentina’s economy will exceeded 13,000, a level not seen in grow between 3 and 5 percent. However, Argentina since late September/early Argentina’s direction over the next October, shortly before cases peaked. year will depend on the ability of the Given this scenario, President Alberto government to successfully stabilize Fernández stated that there is a real risk the currency, and macroeconomy that the country returns to a Phase 1 more generally, as well as on the (strict lockdown for all but essential president’s ability to consolidate his workers) if cases do not decrease. leadership and coalition in an election year. There is uncertainty about how the On January 8, the national economic situation will develop over the government recommended that

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provincial governments limit projections about increased income nighttime circulation, and several due to economic expansion and also

provinces and local governments have encouraging fresh spending.

ARGENTINA

– implemented night time curfews and other restrictions on the size of social The government is relying on a large-

PCR PCR gatherings. Additionally, the recent scale vaccination plan to allow

increase in cases in Argentina along with economic activity to resume with

international developments such as the greater vigor. Argentina’s COVID-19

appearance of a more contagious strain of vaccination campaign, which will be free COVID-19 in the United Kingdom has led and voluntary for all residents, formally to changes in mobility restrictions. For began for priority groups (including health example, in late December, the national care workers and the elderly) in late government temporarily suspended flights December using 300,000 doses of Russia’s with the United Kingdom, Australia, Sputnik V vaccine. The second doses of Denmark, Italy, and the Netherlands. these vaccines arrived on January 16, and Additionally, after having previously the government is anticipating the arrival opened borders for limited international of another 19 million doses (plus another 5 tourism late last year, the government million if required) between January and also announced the closure of borders with February. The government also reached an neighboring countries through January 9 agreement with AstraZeneca to acquire 22 (since extended through the end of million doses (to begin arriving in late January). March/early April), and will receive 9 million doses through the COVAX alliance. The government is seeking to balance There are also ongoing negotiations with efforts to prevent a new wave of Pfizer, Sinopharm, Janssen and Sinovac. COVID-19 with the desire to avoid Argentina’s government realized restrictions that might hamper relatively early that successfully economic activity. There is a sense that ending the pandemic would require after a difficult year, the country needs the accessing vaccines and moved quickly summer tourism season to occur (tourism to secure vaccines from the available represents approximately 10 percent of sources. These deals should be national GDP), and the government has enough to guarantee that a significant been avoiding taking more extreme portion of the population can be measures because of the importance of vaccinated in the coming months, national tourism to help communities hit nevertheless, there are questions by the extended lockdowns. Additionally, about whether the ambitious timeline part of the concern about a new is realistic, and if a vaccination outbreak is the fiscal impact of having campaign can be deployed in time to to reimplement containment avoid a return to stricter lockdown measures. Fresh restrictions bring the measures. possible need for expanded support for vulnerable populations and businesses, The government additionally faces the potentially compromising the challenge of managing the politics government’s plan to reduce the fiscal around the possibility of a fresh deficit in 2021. Spending expanded outbreak and the vaccination significantly last year as the government campaign. Approval ratings of the implemented an emergency family income government’s handling of the pandemic, for vulnerable individuals and support which exceeded 80 percent at the start, programs for companies. The first of these declined steadily throughout 2020, and a measures has been discontinued, while the fresh outbreak would likely generate latter has been refocused and scaled renewed criticisms. Additionally, the down. Any fresh outbreak and government has faced significant restrictions risks undermining scrutiny in the media and criticism

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from the opposition related to its come under strong criticism from the efforts to acquire and distribute opposition.

COVID-19 vaccines. For example, after

ARGENTINA

– having announced an agreement for the Strong calls from the opposition, import of 600,000 doses of the Russian including from former President

PCR PCR Sputnik V vaccine, a public statement by Mauricio Macri, for a full return to in-

Russian President Vladimir Putin about the person classes can also be seen in this

vaccine’s pending approval for people over light. The government has said it is

60 motivated strong criticism of the working to promote a return to in-person government’s poor or misleading classes by the start of the school year in communication strategy, and awakened March, including by prioritizing teachers concerns about the vaccine's efficacy and for vaccination. However, the opposition is whether the timeline is realistic. This was pushing for a more immediate return, compounded by complicated negotiations claiming the government should not with Pfizer, which motivated the opposition condition a return to classes on the to present a bill for the creation of a epidemiological situation. For opposition congressional committee aimed at leaders that have already begun investigating vaccine contracts. vaccination campaigns, these calls may provide a more viable way to While there are certainly legitimate criticize the government without concerns about transparency in undermining their own efforts. In any vaccine procurement and the way in case, Argentina’s vaccination which they are being evaluated for campaign is underway, and if it authorization, the high politization evolves as the government hopes, it around the issue, and the Sputnik V will be a key element in the vaccine in particular, reflects concerns government’s political narrative. about Russia’s geopolitical role and political positioning that has not Argentina continues talks with IMF, aims impacted deployment. For example, to reach deal in near future when the vaccination campaign began, some provincial authorities decided to After having successfully restructured receive the shot in public so as to promote its debt with international trust in the Sputnik V vaccine, including bondholders (see here for Buenos Aires Province Governor Axel background), Argentina has initiated Kicillof from the national ruling coalition. conversations with the International However, even opposition districts Monetary Fund (IMF) aiming to where leaders did not choose to set an restructure the approximately USD 44 example by taking the vaccine billion in debt with the multilateral initiated vaccination using Sputnik V. organization that was accrued by the This suggests that, in part, criticism is previous Macri government. The being driven by political Argentine government is seeking an considerations. This can be read in Extended Fund Facility (EFF) and looking light of the upcoming electoral year to push the repayment dates back from (see below), and the importance of a 2022-23 to at least 2024 and limit annual successful vaccination campaign both payments, defending the notion of in promoting an economic rebound ensuring the fiscal sustainability of the and giving the government a political debt burden. win. In this context, it is logical that it has

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EFF are usually tied to structural reforms, Biden elected: a new start for US- and one of the key questions is what those Argentine relations? terms may be. Conditions agreed with

ARGENTINA Following the election of Joseph Biden as the next – the IMF could involve having to make deep economic reforms—aimed at president of the United States, Argentine President Alberto Fernández congratulated the president elect

PCR PCR correcting fiscal imbalances—that and the vice president elect, Kamala Harris, on their could be unpopular and involve victory through Twitter on November 7. Other

political costs for the government. Argentine government authorities followed suit,

However, Guzmán has said that the including Vice President Cristina Fernández de Kirchner, Buenos Aires City Mayor Horacio current administration will defend the Rodríguez Larreta, ex-President Mauricio Macri, and interests of the Argentine people. The Argentine Ambassador to the United States Jorge government has emphasized that any deal Argüello. reached will be tied to an economic Despite their ideological differences, the Fernández program designed by the government and administration maintained a pragmatic relationship aimed at promoting growth. with the Trump administration, aware it would need its support on key issues, including within the The news that the government would International Monetary Fund. Nevertheless, there is cautious optimism that a new administration that is seek a new program with the more politically aligned will facilitate improved international organism generated bilateral relations and reinvigorate multilateral reactions from within the governing forums. For example, Foreign Affairs Minister Felipe coalition and the opposition. A group of Solá said that with Biden as president, he hopes for a more open relationship between Argentina and national senators from the governing the US. The key issues at stake for the future of coalition close to Vice President Cristina Argentina-US relations include trade (particularly, Fernández de Kirchner (CFK) sent a highly biodiesel, corn and soymeal exports), as well US critical open letter to the IMF questioning support within the IMF.

the motivations and form in which it had However, the relationship began with a minor lent USD 44 billion to the previous Macri snafu. Foreign Affairs Minister Felipe Solá became administration and calling for explanations involved in a scandal for allegedly making up details for the failure of the program. The of the topics discussed between President Fernández and Biden on a congratulatory phone opposition coalition responded by call. According to media reports and the Argentine defending Macri’s economic and fiscal presidency’s official statement, the two did not policies, and argued that the governing discuss the stance of the US representative in the coalition is trying to create a narrative that IMF towards Argentina as Solá had claimed. The incident generated brief attention, but passed would allow them to avoid political relatively quickly. It now remains to be seen if the responsibility for the public spending cuts government can capitalize on the change of planned for 2021. The political debate administration to increase cooperation in key areas, over the IMF deal and a fiscal especially as Argentina continues to build ties to other geopolitical powers, or if US-Argentine adjustment are expected to continue, relations remain lukewarm. especially heading into an electoral year. A successful deal will rely on publicly communicated about the political capital and strong status of the discussions, but Guzmán coordination from Economy Minister anticipated that he expects the new Martín Guzmán, and careful managing program with the IMF to be signed in of the politics by both the government March or April 2021. and the IMF. For its part, the government has been laying the groundwork with the In any case, the government has messaging that this is a “new IMF”. already been sending signs about fiscal adjustment. On November 4, the IMF missions visited Argentina in October Senate gave final approval to a one-time and November to begin talks about a new wealth tax, affecting individuals (not deal. Subsequently, Guzmán sent a companies), aimed at financing emergency committee to continue discussions in spending. Additionally, the government Washington DC. Few details have been has presented a bill requiring

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congressional approval for future and will move forward as planned. As international debt issuances (approved in such, primary elections will be held on

the Senate, and expected to be passed in August 8, and general elections will

ARGENTINA

– the lower house in the coming weeks) and occur on October 24 to replace one- is reportedly developing a tax reform. third of the Senate and half of the

PCR PCR Chamber of Deputies. The 2021

A new deal will give a sense of elections offer the government

direction and buttress the coalition the opportunity to

government's economic plan. The strengthen its legislative position and resolution of the debt negotiations, for President Fernández to position along with the evolution of the himself for reelection in 2023. COVID-19 situation, are key factors However, an electoral defeat could that will impact the economic outlook compromise the government’s ability for Argentina this year. An agreement to advance policy proposals, decrease with the IMF may provide additional the president’s reelection chances and clarity and confidence in the country’s increase political uncertainty overall. economic path, but bring short-term risks related to a slower return to Tensions within the coalition could be growth or political pushback if the exacerbated as the midterm elections deal contains unpopular elements. come closer, and the different sectors Separately, a fresh COVID-19 of the coalition strive to position their outbreak and increased restrictions own candidates. However, would damper expectations for maintaining the coalition is key for its growth. electoral viability. These dualling pressures are evidenced by the dispute Upcoming midterm elections for the leadership of the Peronist Party in exacerbate tensions in main political Buenos Aires Province between Máximo coalitions Kirchner, head of the governing bloc in the Chamber of Deputies, and the mayors of 2021 is an electoral year. Despite some the Buenos Aires metro area. While speculation last year, the primary elections President Alberto Fernández expressed his will not be postponed due to COVID-19 support for Kirchner, seeing it as a sign of

Sources: Berensztein, Management and Fit, CB Consultora, Zuban Códoba y Asociados, Giacobbe Consultora, Poliarquía. 8

unity in the coalition, most mayors generated surprise in the governing rejected this candidacy. Mayors do not coalition and among allies of Larreta, who

want to give candidates from Kirchner’s had hoped to define the lists of candidates

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– political group La Cámpora the power that in Argentina’s largest electoral district. It that stems from leading the Peronist Party is clear that early 2021 will see

PCR PCR in the province (the country’s largest disagreements as the different

electoral district), but understand that groupings in Juntos por el Cambio

they will need Vice President Cristina seek to position their candidates.

Fernández de Kirchner’s support to win the next elections. Additionally, the The government heads into the government’s chances of electoral electoral year in a stable, although not success will strongly depend on the entirely comfortable position. While country's economic performance. The Fernández’s approval ratings have poor performance of the economy, fallen from the unusually high levels and difficulties in containing the seen at the start of 2020, they remain COVID-19 pandemic have already relatively strong at around 40 percent, taken a toll on Fernández’s approval giving the government a good base ratings, which are currently at about from which to build votes. 40 percent (see graph on previous Additionally, the elections in many page). ways are the oppositions to lose. The seats being renewed in the national The impending midterm elections are Congress are from 2017, in which Juntos also exacerbating the tensions within por el Cambio (then-Cambiemos) had a the opposition Juntos por el Cambio strong performance, putting them in the coalition, which like the government, position of having to defend their seats. comprises various parties and political Finally, the economic rebound projected figures vying for leadership. Buenos for this year would also likely benefit the Aires City Mayor Horacio Rodríguez Larreta government. figures as the coalition’s natural presidential candidate due to his high Congress concludes active year of approval ratings and role as the main remote sessions, begins extraordinary opposition leader with responsibility for sessions governing, and indeed he has already begun positioning himself for a presidential Despite the pandemic context, the run in 2023 (see here for background). national Congress had a relatively However, he faces numerous active year after reaching political challenges in asserting his leadership agreement to hold remote sessions over the coalition’s direction. First, (see here for background). During the there are internal disputes for primacy legislative period that lasted from within his own PRO party, including from December 10, 2019 to November 30, former President Mauricio Macri and 2020, Congress approved 65 laws former Security Minister under Macri and (compared to 45 in the same period a year current president of the PRO party, Patricia before). Additionally, Congress held more Bullrich, both of whom have been sessions than the average in the preceding increasing their profiles by promoting four years; the lower house held 20 hardline stances against the government sessions, while the Senate held 28. In (in contrast to Larreta’s more moderate part, this reflects the facility of style). Further, the announcement of Elisa meeting allowed by remote sessions, Carrió, head of the Coalición Cívica (CC) as well as a busy agenda as the party, that she would seek a seat as government sought to pass many national deputy from Buenos Aires measures including a reform of Province (after having resigned her knowledge economy promotion position in Congress earlier in 2020), framework, the 2021 budget, a new

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telework law, and many pandemic- disagreements with the opposition. In the related measures such as a one-time lower house, where the government

assessment on large fortunes. lacks its own majority, the opposition

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– is pushing to clearly define the agenda Outlook before agreeing to renew the protocol

PCR PCR for virtual sessions. This means that

In early December, the national executive legislative activity is likely to resume

extended ordinary sessions in Congress slowly; meanwhile, the Senate, where the

through January 3 in order to advance government has a majority, plans to several measures (including the bill to resume work in late January and early legalize abortion), and called extraordinary February. sessions to be held from January 4 through February 28 (the ordinary year begins in March). Now, national senators and deputies are preparing to return to Congress. As a top priority, the governing coalition is pushing for the Chamber of Deputies to discuss several economic bills: First, a bill requiring congressional approval for the issuance of international debt (already approved in the Senate). Second, a bill providing benefits to promote investments in the construction sector, and third an extension of the biofuels law (also already approved in the Senate). They are also set to discuss the yearly tax scale adjustment for independent workers, due to increase 35.3 percent in 2021.

The national executive determines which bills can be debated in extraordinary sessions, giving the government a chance to set the agenda and advance priority bills ahead of an electoral year in which legislative activity is likely to slow by mid-year. In addition to the above-named measures, the list of items that Congress could discuss include a bill for nutritional labeling, a defense competition reform, and measures to reform the judiciary and Public Prosecutor's office. However, given the controversial nature of the last two of these bills, they are likely to be treated later in extraordinary sessions, and only if the government can first ensure political support. While the government was hoping sessions would begin this week in the lower house, their start has been delayed by

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Eyes on 2021: Cefeidas Group’s key issues to watch in the year ahead

• Frente de Todos coalition dynamics: How will the tensions within the governing

coalition evolve? Will the president assert his leadership and resolve disputes ARGENTINA between the members to guide decision making, or will the government continue to – be plagued by coordination challenges and backtracks?

PCR PCR

• Electoral candidacies: How will electoral candidacies in the governing and main

opposition coalition shape up? What will they say about the balance of power within

each, and their respective strategies?

• IMF deal: Will the Argentine government and IMF reach a new deal? What do the terms look like, and will they be politically viable? Will the government be able to successfully sell the deal to its electorate?

• Economic indicators: Will economic growth this year live up to projections, and will the government be able to tame inflation if the economy picks up? How will the national government address increasing unemployment and poverty? Will the government be able to lower the fiscal deficit and stabilize Central Bank reserves as it hopes?

• COVID-19 and the vaccination campaign: Is Argentina in for a second wave of COVID-19 and another strict lockdown? Will the national government manage to achieve its ambitious vaccination plan? Can the government successfully manage the politics around vaccine deployment and turn it to political advantage?

• Mercosur relations: Will Argentina take advantage of holding the Mercosur presidency in early 2021 to advance trade deals or push for the incorporation of new members? Will the country manage to navigate differences with Brazil, or will the bloc remain stymied by internal differences?

• US-Argentina relations: How will US - Argentina relations evolve as Biden takes office?

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