Argentina is a long way from everywhere--particularly everywhere that counts to Argentines. As a result, the drama the country has been living through the past twelve months or so has been a sideshow in the global media, pushed aside by the events of September 11, Afghanistan, the Israeli-Palestinian conflict, and lately the debate over what to do about Iraq. Nonetheless, events in Argentina are coming to a head. They will soon force themselves on the attention of the United States and other members of the Group of Seven (G7).
The immediate problem is the country's insolvency. It has defaulted on more than $140 billion worth of external debt and no longer possesses sufficient dollar reserves in the Central Bank to back the full value of the peso, which until last December was pegged at one-to-one to the dollar. To make matters worse, the government has chosen to restrict the access of ordinary Argentines to their bank accounts, which, thanks to the decoupling of the peso from the dollar, have by now lost roughly 75 percent of their value. These events have produced a social crisis not seen anywhere in Latin America since the Great Depression. The one country in South America with a large middle class, and what is perhaps more important still, that has long possessed the culture of a middle class, is sliding inexorably toward poverty and chaos.
In times past, situations even remotely similar to this would have provoked a military coup. It is a tribute to the enduring strength of the country's democratic institutions--in place for twenty years now--that in spite of everything it continues to struggle for an orderly, constitutional way out. A date has been set for new presidential elections. Nonetheless, there is little basis for believing a mere change of government will resolve the country's problems. And if not that, what?
The Misleading Prosperity of the 1990s
It will be decades before Argentines can decide exactly what went wrong--if indeed they can ever reach consensus. During the 1990s the country was the darling of the international financial establishment and the recipient of accolades from the world press, thanks to dramatic economic reforms undertaken by President Carlos Menem (1989-1999) and his brilliant finance minister Domingo Cavallo. These included pegging the peso to the dollar, privatizing money-losing state enterprises, drastically altering investment laws, and dismantling high tariffs on many imports. There were even some attempts to imitate the pension reforms of neighboring Chile. At the same time, some $50 billion in Argentina assets abroad--perhaps even more--returned to the country. For the first time in many years Argentines had a sense that they had finally broken through the repeated cycle of failure.
Behind the faade of renewed economic well-being, however, a central fact remained. Much of the prosperity of the 1990s was due to the infusion of foreign money rather than a meaningful increase in Argentine productivity. While some new investment came into the country, in many ways behind the façade of economic boom the country had not changed all that much. It had a labor code copied from Mussolini's Italy, one in which payroll taxes could represent 40 percent above and beyond the cost of an individual worker's wages; a health delivery system that was three times as large as it needed to be--and failed to deliver quality care in the bargain; and a bloated and outsized national university system in which students were exempt from tuition, while primary and secondary schools went begging for basic resources. At the same time, Argentina's provinces--many lacking in adequate roads, schools, or infrastructure--were maintained on a kind of dole from the federal government. In some, virtually half the economically active population worked for the provincial authorities.
For an entire decade Menem and Cavallo managed to square the circle through heavy foreign borrowing. In retrospect it seems remarkable that no one in Argentina seems to have considered the possibility that, without qualitative improvements, the country would eventually exhaust its creditworthiness. On the other hand, borrowing abroad was simpler, and far less costly politically, than facing up to the structural inefficiencies of the Argentine state. What the creditors were thinking when they doled out huge sums to Cavallo is anyone's guess.
A Crisis of Finance and Leadership
Menem left office in late 1999, just in time to avoid the crunch point. His successor, Fernando de la Rúa, came into office just as the system began to break down. A quiet, modest, and unspectacular politician, de la Rúa also suffered from a lack of deep support in his own Radical Party, so that even in the best of times he would have found daunting the task of governance. In times of crisis he simply had no recourse; when riots broke out in Buenos Aires just before Christmas, he found himself isolated and discredited, forced out of office a full three years before his term was due to expire.
His successor--chosen by the Argentine congress--was Senator Eduardo Duhalde, the very man who had run against him in 1999. Although a Peronist like Menem, Duhalde represents an older and more traditional strain of that persuasion, one much less attuned to the realities of the present day. From the very moment he took office just before Christmas, he made it clear that Argentina's long honeymoon with "neoliberalism" had come to an end. His plan was to obtain a huge new line of credit from the International Monetary Fund, wherewith to assuage at least temporarily the country's deepening social crisis. A close relative was appointed to dispense government largesse; it was even rumored that, although Duhalde had pledged not to run again in 2003, he had plans to push forward his wife. All of this was based on the assumption that Argentina was simply too large a player on the world economic scene to be written off by the banks and the major financial powers; sooner or later, he reasoned, the United States, the G7, and the International Monetary Fund would come to terms. In this Duhalde has made a massive misjudgment. Much of his time these days is spending devising a graceful exit scenario for himself and his associates.
Contenders and Pretenders
As of now Argentines are scheduled to elect a new president on March 30, 2003. (It is still unclear whether, as many now demand, those elections will also include voting for all legislative and elective offices, major and minor.) A nationwide primary will be held on December 15 to determine the presidential candidates of all of the major parties.
Considering the country's dire state and apparently insuperable problems, it is remarkable how many people want to step up to the plate. Perhaps the most colorful candidate is Elisa Carrió, founder of Argentines for a Republic of Equals (ARI). Carrió, a congresswoman formerly affiliated with the Radical Party, is a single mother, a former beauty queen, a lawyer, and a tireless fighter against corruption. (She is much given to making sensational accusations, some of which have turned out to be unfounded. Lately she has taken to claiming that the U.S. embassy is working day and night to prevent her election.) For months she has been leading in the polls--which is to say, she has been the preference of about 30 percent of those surveyed--but as the race draws closer, her numbers have begun to decline. This suggests that her previous favorable showing merely reflected a general indignation with the status quo and the political class as a whole rather than a considered conviction that she would make an effective president.
Another example of the unexpected is Luis Zamora, a Trotskyite congressman who is a veteran of Argentina's ideological and political wars. Although the Left in Argentina has never been competitive nationally, thanks to the economic crisis Zamora has received more media attention than ever before, and he also benefits from not belonging to the traditional political class. But again, as the date of the elections draws closer, his support seems to have stagnated at 8 or 9 percent of those polled.
What is remarkable about the coming primaries, however, is not so much the multiplicity of minor candidates as the fact that for the first time in nearly a hundred years the Radicals, the country's oldest party, will not be fielding a serious candidate. In fact, the decisive election may occur on December 15, when the Peronists decide upon their own standard-bearer. Paradoxically--but perhaps also symptomatically--the Peronist with the highest degree of popular support in the polls (41 percent), Santa Fe governor Carlos Reutemann, has chosen not to run at all. As a result, the race narrows down to four others--former San Luis governor Adolfo Rodríguez Saá, Santa Cruz governor Néstor Kirchner, Córdoba governor José Manuel de la Sota, and former president Carlos Menem.
The latest surveys (published in La Nación, August 25) show Rodríguez Saá slightly in the lead with 16 percent, followed by Kirchner with 10.5 percent, Menem with 10.0 percent, and de la Sota with 5.3 percent. (Eleven percent favor none of the above, 8.4 percent plan not to vote, 5 percent "don't know" whom they will vote for, and the remainder is distributed among other candidates.) More interesting, however, are the trend lines. In the past month (from July to August) all of the Peronist candidates improved their standing with the general electorate, including Carlos Menem. This is so, despite the tendency of most Argentines to blame the former president for the present state of affairs, or even the recent revelations that, contrary to long-standing denials, he has long held a secret bank account in Switzerland. More interesting still is the fact that the candidate whose numbers have improved the most in the past thirty days--Governor de la Sota--is generally thought to be a stand-in for President Duhalde, even though his style of management and indeed even his deepest economic and political convictions could not be more different. (He is a great admirer of the American economist Arthur Laffer.) With even the Peronist electorate so widely spread, we may be facing the prospect of an utterly unprecedented situation, in which there will have to be a second round to the primaries.
Complicating matters yet further is the fact that within Peronism itself there are many ideological flavors. Governor Kirchner is known to be a fire-and-brimstone populist, while former president Menem is calling for even more drastic market-based economic reforms, including formal dollarization of the Argentine currency. In spite of support from President Duhalde, Governor de la Sota embraces a somewhat milder version of Menem's program, while no one can say for sure exactly what ideological trend Governor Rodríguez Saá represents. Given the heavily personalistic nature of Argentine politics--and Peronist politics in particular--it may be a mistake to attach too much programmatic importance to any candidates; at the same time, bait-and-switch is a popular game for newly elected Argentine presidents, all of which further clouds the crystal ball.
A Crisis of Confidence
Argentina's crisis is economic, social, and political, but it is also spiritual and cultural. A country of immigrants like the United States, founded on an Argentine version of the American dream, today it seems to be a nation that--rightly or wrongly--has lost confidence in itself and in its possibilities.
This crisis of confidence takes many forms. Argentines who can assert a reasonable claim to Spanish or Italian ancestry have been queuing up at the consulates of those countries to obtain a passport and, with it, the right to work in any country in the European Union. The United States is likewise a much-sought-after destination, though even before September 11 it was becoming more difficult for Argentines to travel, much less settle, here. As it is, the Miami press has recently estimated that some 200,000 Argentines are illegally working in South Florida. Even Israel, in the midst of its own crisis, is proving an attractive destination to some members of the Jewish community, the world's fourth largest community.
The country is also experiencing a wrenching debate with itself about what went wrong--where was the crucial "wrong turn" in Argentine history? For some it goes back to the nineteenth century; for others the fault lies with Juan and Eva Perón in the 1940s; for yet others, with the military dictatorship of the 1970s. Others seek to place the blame further afield. A recent issue of the popular magazine Tres Puntos carries interviews with such European personalities as Ignacio Romanet, editor of ultraleft Le Monde Diplomatique, attributing all the ills of the world to "globalization" and predicting an early end to capitalism. (The same issue carries a fulsome report on the campaign of the Marxist presidential candidate in Brazil, as if a sharp turn to the Left there would be Argentina's salvation rather than the signal for international capital to leave South America altogether.) It may indeed be that for the first time since the 1970s a culture of the Left is reemerging in elite circles in Argentina. In and of itself this may not be politically significant, as demonstrated by the examples of the United States, France, Spain, Italy--even the Netherlands and Denmark. But it does suggest the need for politicians to come up with more concrete proposals, lest the political culture as a whole drift toward fantasy. It has happened before in Argentina. One can only hope it will not happen again.
Mark Falcoff is a resident scholar at AEI.
