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A recent opinion poll showed that the most popular politician in Argentina is President Fernando de la Rua who has been in office since last December and is this week in his first official visit to the United States. But you wouldn’t guess this from reading political and economic commentators in the Buenos Aires press. For different reasons, they and the chattering classes that gather at the Florida Garden and La Biela, two cafés in the Argentine capital where they hold a sort of informal and lively symposia every day at noon time, do not share the favorable popular opinion on de la Rua.
The political and economic views of this elite café society are largely shaped by the fact that, after ten years of president Carlos Menem rule, which they enjoyed criticizing for his flamboyant style but was good for most of them, either in government posts or, in many cases, through government-related businesses, they find themselves as outsiders—“noses pressed against the window”, as reported by a friend who is a regular witness of this cabal but manages to maintain himself independent of it.
Media commentators share part of this problem. It is not easy for them to adjust to de la Rua’s thoughtful and understated style when they have been for a decade covering a rambunctious Menem. But the issue goes deeper: clearly, most commentators appear to be poorly equipped to really understand the seriousness of issues Argentina faces vis-a-vis the global economy and what has to be done to deal with them.
Former president Menem deserves great credit for steering Argentina towards a free-market economy, early in his first term that started in 1989, by getting rid of deficit-ridden state enterprises and for stopping hyperinflation dead on its tracks by tying the peso to the dollar in a policy known as “convertibility,” which established that the central bank could issue pesos only to the extent they were backed by dollar and other hard reserves. But his second term was plagued by corruption, fiscal mismanagement and the lack of an effort to both gain direct foreign investment and improve Argentina’s trade balance through larger exports, leaving the country’s balance of payments at the mercy of the flow of foreign financial capital. This perilous situation was compounded by the impact of the 1997 Asian financial crisis, that brought a 22-month recession with 14 percent unemployment.
Austerity policies are never well received, and the ones launched by de la Rua in his attempt to reignite the idling economy were no exceptions. Shortly after taking office in December, de la Rua pushed through an unpopular tax hike and labor reform, as well as spending cuts, that helped Argentina secure a $7.4 billion standby loan from the International Monetary Fund. The nation must reduce its budget deficit to $4.7 billion in 2000 from $7.1 billion last year under the terms of its emergency standby agreement with the IMF.
To trim the deficit by $2.5 billion this year, in late May de la Rua announced a new round of spending cuts. Among other things, his plan calls for an annual 12 percent to 15 percent reduction in the salaries of state employees at the higher levels, a deregulation of the country’s health system and a cut in state pensions, particularly “exceptional” ones granted in very large amounts by the preceding administration.
Some inequities have been noted in the plan, and they probably will be remedied in its final form, but organized labor, already disgruntled with the much-needed labor reforms de la Rua pushed through Congress, called for a strike last Friday, on the eve of his departure for the United States for meetings with Wall Street financiers in New York, to seek increased private investment from American firms, especially in telecommunications, and to press the Clinton administration for the reduction of import restrictions on Argentine goods such as steel pipe, orange juice and beef.
As strikes go in Argentina, this was no great success; the country’s activity was slowed down, but no stopped. Argentines seemed to sense that the strike was mostly motivated by union opposition to the government decree opening up the health insurance market, a sector that is dominated by union- controlled funds.
Nevertheless, the Buenos Aires press—with around one-seventh of the country’s population the capital weighs heavily upon national opinion—played up the strike as proof that the administration’s policies of structural reform, aimed at bolstering Argentina’s one-to-one peso dollar exchange rate and avoiding an economically damaging devaluation, are doomed.
Not only scant attention was paid by local commentators to the growth in exports, from 12 per cent in the first quarter, to an estimated 15 per cent in April, and to the news that industrial production was up 5 per cent in April from a year ago, but totally lost to them was that the day before the strike Argentina was successful in swapping $2.4 billion in fresh 15-year global bonds for $3.3 billion in old Brady debt, thus reducing the country's $120 billion public sector debt by about $927.6 million and freeing up $1.1 billion in U.S. Treasury bonds that backed the Bradies and which Argentina can now sell to narrow its budget deficit to the IMF demanded target.
And it would have been easy to put this achievement in meaningful terms for the average Argentine: through this move, debt on which Argentina paid 16 per cent annual interest was swapped for debt that costs 13 per cent.
Claudio Campuzano (claudio-campuzano@hotmail.com) is U.S, correspondent for the Latin American newsweekly Tiempos del Mundo and editorial page editor of the New York daily Noticias del Mundo. He writes weekly for World Tribune.com