The loud protest of banging pots is no longer heard on the streets of Buenos Aires. The famous message that the Argentine people shouted at the ruling class – “All of you, get out!” – has been losing its power with the passage of time. Almost a year and a half after the economic debacle, the same old group of candidates is preparing to compete in historic presidential elections on April 27.
Nevertheless, the country has paid a price for the lack of political renewal that public opinion so loudly demanded: There is now widespread apathy among the people, voters are fragmented and the leading Peronist party is in crisis. In this setting, what type of government will emerge from the upcoming elections? And will it be able to carry out the reforms that the country so desperately needs?
Argentina began 2003 on the right foot after four years of economic crisis and an especially bleak 2002 during which the country experienced devaluation, the freezing of dollar savings deposits, the flight of capital, default, and acute social problems. Growth in exports and domestic consumption has been responsible, in large measure, for economic recovery. Indeed, analysts at the Dresdner Bank project growth at between 2% and 3.5% this year compared to an 11.4% contraction in 2002.
The incipient recovery has been accompanied by the signing of two agreements that will determine if economic normalcy returns to Argentina. The provisional government of interim president Eduardo Duhalde signed a decree for the opening of the “corralón” (literally, “large yard”) in which dollar savings deposits had been frozen. The plan calls for gradual liberalization of bank deposits in dollars. In January 2002 these deposits were converted into pesos at a rate of 1.4 pesos per dollar, to the detriment of Argentine savers.
In addition, the government reached an agreement with the IMF to postpone the country’s $6.6 billion debt payment until August. However, according to Wharton management professor Mauro Guillén, “The agreement with the IMF has minimal significance; it’s like a tank of oxygen. It’s a case of gaining time to get past the elections. Argentina needs to arrive at a total accord with the IMF because Argentina is, in effect, outside the capital markets at the moment. That is because no one knows who the president is going to be…”
For that reason, a solution to the crisis depends, in large measure, on the results of the upcoming election. “It is going to give stability to the country because, in spite of modest advances made in the economic realm, there is still too much uncertainty,” states Carlos Malamud, professor at the Universidad Nacional de Educacion a Distancia and chief Latin American researcher at the Real Instituto Elcano in Madrid.
Ever since the economic debacle of December 2001, says Malamud, when five presidents passed through the Casa Rosada (Argentina’s presidential residence) in less than one month, there has been “a general disenchantment … beyond the shouting of the pot banging days. People have very low expectations when it comes to Argentine politicians.”
And that, according to Wharton management professor Gerald McDermott, is unfortunate, given that “Argentina’s problem is a political one, an institutional one. Economics is secondary.” Politicians, he says, need to worry about establishing a rule of law, and focus on issues like distribution of wealth, budget discipline, property rights, tax reform and judicial process. In such critical areas, he says, the country “still has a long way to go.”
Various public opinion polls suggest that the rate of participation in this election will be among the lowest in Argentine history. And currently no candidate can count on enough popular support to win 45% of the votes in the first round. On the contrary, polls indicate a complex situation in which not one of the five main candidates – Carlos Menem, Nestor Kirchner, Adolfo Rodriguez Saá, all of whom belong to the Peronist party, and Elisa Carrió and Ricardo López Murphy – can bring together more than 20% of the voters. As a result, there will most likely be a second round of voting in a May 18 runoff between the two candidates who get the most votes on April 27.
“You can be almost completely sure that there is going to be a second round of voting because at the moment all the candidates are quite even in the polls,” notes Malamud. “There is not going to be a clear leader. This means the government that wins will be very weak.”
In addition, the two-party system that dominated Argentina’s political scene for more than half a century has been shattered. The Radical Civic Union (UCR), traditionally the second most important party in Argentina, usually counts on getting minority support in the polls. With the resignation of Fernando De la Rua in 2001, all hope vanished that it would form the government.
Major players in this drama include President Eduardo Duhalde (who is prohibited by law from running in this election) and the charismatic ex-president Carlos Menem. Menem, an ally of the U.S., was the leader who brought prosperity to Argentina during the 1990s with a series of free market reforms. His approach worked well until recession hit in 1998 and the country was suddenly burdened with massive foreign debt, rampant corruption, runaway domestic spending and a disastrous currency rate policy, all of which led to the economy’s collapse in December 2001. In Argentina, once considered Latin America’s most prosperous country, nearly 60% of its population now lives in poverty, including a number of people who once belonged to the country’s thriving middle class.
A feud between Menem and Duhalde has divided the Partido Justicialista, also known as the Peronist party, the main political force in the country. The rivalry of these two leaders goes back to the election of 1999 when Menem tried to run for president again – after serving in that position since 1989 – even though the country’s constitution did not allow a third consecutive term. Duhalde, who had been Menem’s vice president, finally became the Peronist candidate but lost the election, a loss that he blamed on Menem.
Duhalde now appears to be paying Menem back in kind by trying to prevent him from governing again. He arranged for the National Peronist Congress to cancel the primary elections of the party, and authorized that all three Peronist candidates – Menem, Rodríguez Saá and Kirchner – run in the upcoming presidential elections on behalf of the same party, with each defending his own faction.
According to Ramon Mahía, an analyst at the Center for Latin American Studies (CESLA) in Madrid, “The division that has taken place at the heart of Peronism is not rock hard. It is more a question of the confrontation of power groups, in which regional interests have an influence but don’t have ideological depth.” In other words, the disarray reflects more of a struggle between political old-timers than the dismemberment of the party.
The real problem at the root of these elections, adds Mahía, is the lack of concrete economic projects from any candidate. “In the short run, [that fact] could be beneficial [for the country] since it guarantees that Argentina will continue along the lines dictated by the IMF. Nevertheless, it is a drawback because there is no feeling of political renewal, which is important in the long run.”
Adds Guillén: “There are very few tricks that the new president will be able to pull out of his hat since he will have a very narrow margin for maneuvering. That is because Argentina’s crisis has come at the worst moment, when there is a global recession. These days, Latin America is not a priority for Europe or the United States.”
Indeed, Argentina’s biggest economic challenge at the moment is to reorganize the debt, says McDermott. “There is no money entering the country in terms of official lending to the government. Even private actors, like NGOs, can’t come in because nobody will underwrite the investment.”
In addition, McDermott says, the country has to grow. “The policies of the previous decade stripped Argentina of a manufacturing base and the types of institutions related to value creation. Now the country lives off primary resource industries like grain, oil and fruit,” although there is strong activity, including exporting, in several manufacturing areas. “The country needs to develop policies to sustain and grow its export capabilities.”
The crisis is over in the sense that Argentina is no longer “in a depression. It has bottomed out,” McDermott adds, but there is “still a crisis based on the necessity to create sustained growth.”
Menem’s Political Comeback
It is quite possible that the successor to Duhalde will also be a Peronist – and that he will take few risks when it comes to presidential economic policy. “Peronist candidates have always been very pragmatic,” says Guillén. “For them, the most important thing is to be in power. Once they are in, the range of measures that they have historically put into practice is so wide, you really can’t tell [what will happen.] For example, Menem was going to be the typical Peronist president, if we focused on what he said in his election campaign. But then he became the President who privatized the most. It is very hard to predict what is going to happen.”
The three Peronist candidates are ahead in the polls of those people who say they will vote. Among them, Menem, who was given a slight edge over his rivals in a poll taken last week, is the most likely to emerge as a finalist for the second round. The ex-president, now 72, has made great strides in his political comeback after he spent five months under house arrest, accused of illegally selling arms. Menem, who claims he is innocent of these and other corruption charges, hopes to return to the Casa Rosada for the third time.
As if in imitation of Argentina’s most famous leader, Juan Perón, Menem has even found his own [equivalent of] Peron’s wife, the equally famous Evita: Menem and his wife, Cecilia Bolocco, a 37-year-old Chilean and former Miss Universe, are expecting a child in December. Nevertheless, Menem is dogged by his past. “He has a serious credibility problem,” states Malamud. “Although for some sectors he may be the least of the evils, he is thoroughly rejected by others.”
If Menem is one of the two surviving candidates on April 27, Malamud adds, “it is very likely that in a second round he will be defeated because many people are going to vote against him – much along the lines of what happened in France with [Jean-Marie] Le Pen. In the May runoff, the protest votes of the other candidates could come together. Everything depends on who the other candidate is in the second round. If it’s Menem against López Murphy – who is not a Peronist – the election could wind up being more of a struggle.”
Menem “is the only candidate who implies a certain danger,” says Mahía. “That’s because if Menem wins, we don’t know what the reaction of the electorate or the international community will be … Menem has a lot of enemies and his victory could make governing more difficult.”
The other Peronist candidates, economist Néstor Kirchner and ex-president Adolfo Rodríguez Saá, also have a good chance of winding up a winner. Kirchner is the only one of the three who has not been president. Backed by Duhalde, Kirchner presents himself as a good bet for political renovation. His proposals include waging a battle against tax evasion and renegotiating the IMF debt.
As for Rodriguez Saá, he was president for a week, during which he announced a state of bankruptcy and declared the default. He now pleads for restraint in public spending and wants an inquiry into the origins of the foreign debt to enable subsequent renegotiation. He is the most populist of the Peronists and, on occasion, has suggested the possibility of breaking Argentina’s ties with the IMF.
According to Mahía, Rodriguez Saá’s position is only electoral posturing. “This sort of populist speechmaking is more attractive from the electorate’s point of view, but a country [like Argentina, which is] so dependent on international financing, cannot live outside institutions.” Moreover, adds Guillén, “If I remember correctly, Iraq and North Korea are among the countries that are in that condition. Is this the club that Argentina wants to be in? Some IMF policies are reprehensible, but you have to be within the system of international payments to take part in international commerce.” McDermott describes Rodriguez Saá as “a classical political strongman who controls politics and money.”
Ricardo López Murphy of the MFR party is a liberal who is somewhere right of center politically. His popularity in the polls has been rising significantly. A former economic and defense minister, López Murphy wants to reform institutions in order to rebuild lost confidence and to reintegrate Argentina [back into] international commerce. “He is the one who suggests the most aggressive program for getting the country out of the crisis, and he is the clearest in his message,” says Malamud.
López Murphy, adds McDermott, “cares about the rule of law. He is fiscally conservative and the financial community likes him. He would be a credible face but his capacity to govern is unclear.”
Due to the closeness of poll results, analysts don’t discount the chances of candidate Elisa Carrió – a former deputy from the Radical Civic Union, the Radicals, who is center left – to make the second round. “She is charismatic,” says McDermott. “The poor and the middle class are with her, which scares a lot of people. She is also a very intelligent woman who understands macro economics.”
Designing an Economic Model
What will happen after May 25, once the second round is over? If the findings of the latest opinion polls hold true, the president who emerges from the elections will be a fragile leader with little support from the population and the Congress. And if he is also a Peronist, he will have little support from his own divided party.
“Argentina is going to have a government much like Brazil’s, with weak support in the legislature and its regional institutions, although Brazil is different because [it has] a stronger national spirit,” says Mahía. “[Brazilian president] Lula, being a radical, has managed to bring together the support of the legislative branches. But it is hard for this to happen in Argentina because there isn’t even agreement within the same party … The more political cohesion [a government has], the better the chance for undertaking reforms,” such as negotiating a restructuring of the banking system.
As for Argentina’s relationship with multinational organizations, “whoever wins, the agreements with the IMF are going to involve problems for the country. Now they are easy [for Argentina] to comply with because they are progressive. But in December, the country may encounter some problems making its payments – at the same time that the government changes as a result of these elections,” Mahía says.
Argentina faces other major challenges up ahead, such as cutting its unemployment rate – now at 23% – and its inflation rate to 25%, in order to avoid a widening of the social gap between rich and poor. Other challenges include normalizing its monetary policy and controlling the gangs of “piqueteros,” street protesters who played such a decisive role in the resignation of De la Rua and the fall of the government of Rodríguez Saá in 2001.
But the greatest challenge facing Argentina, in Guillén’s opinion, is to “decide in the mid- and long-term what type of country it wants to be. Argentina has to design its economic model. Chile has one; it is a country that isn’t married to anyone, and there is a general social consensus in Chile about what the country wants to do. In Argentina, there needs to be some sort of consensus on the part of the population, business people, politicians and labor unions, which are quite divided about what that model is.”