Can Argentina Make It Back?

AMERICANS generally moan and groan and vote incumbent presidents out of office on those rare occasions when the nation's annual inflation rate hits double digits.

Argentines would love to have it so good.

After a winter in which they saw their local earnings devastated by rampant inflation (nearly 200 percent for the month of July) and were forced to endure the austerity measures contained in an emergency economic "shock" plan, the portenos of Buenos Aires are now breathing a sigh of relief.

For while the Argentine economy has not yet emerged from the crisis that led to record levels of inflation and forced Raul Alfonsin to hand over the presidency six months in advance, there are some encouraging signs. After all, the economy has clearly stabilized, with the latest figures show inflation falling to a mere 10 percent. For the month.

ARGENTINA has often been called the great 'enigma' of Latin America. A country with tremendous natural resources, a well-educated citizenry, an industrial base and a highly advantageous geopolitical position, it has nevertheless suffered through a halfcentury of economic crises, political instability, and near hyperinflation. Once considered the economic giant of Latin America and an emerging world power, it is now deeply impoverished and deeply in debt.

While the occasional street activist will inevitably mumble something about "yankee imperialism" and "ruthless American multinationals," the vast majority of Argentines know better: namely that throughout the past 45 years, their economy, along with the Soviet Union's, has been the world's most mismanaged. In fact, Argentina has become the classic example of a nation that, simply through misguided economic policies, has virtually destroyed its once-competitive position in the world economy.

Since Juan and Eva Peron came to power in 1946, the Argentine state has, because of political pressures from both business and labor, taken on the role of subsidizing a wide range of economic activities.

As a result, to use Ec 10 jargon, salaries, benefits and wholesale prices bear no relation to traditional market factors. For example, subsidized gasoline is sold to the public at seven or eight cents a liter when it really should cost between 40 and 50 cents.

Not only does this mean that many Argentine industries are woefully uncompetitive on the world market, but also that the Argentine government invariably operates at a loss. In order to finance the massive fiscal deficits that inevitably result, the government simply orders the Central Bank, which lacks the autonomy to determine the money supply that our Federal Reserve has, to print more money. The inflationary tiger, once unleashed, proves awfully tough to tame.

THE situation got so bad that by July the wildly-fluctuating Argentine currency (the austral) had fallen during the past year from a value of about $1.25 to roughly one-seventh of a cent. Every Monday morning, the banks were flooded with people desperately trying to change their fast-depreciating australs to U.S. dollars, the de facto national currency that is welcomed almost anywhere.

The depths of the tragedy can be measured elsewhere: Unemployment has risen to its highest level in fifteen years. Over 44 percent of the population in Greater Buenos Aires is now living in poverty. And for the first time in recent history, Argentina, which has traditionally prided itself as a haven for German, Italian, Russian and, more recently, Korean immigrants, saw a net flow of emigrants out of the country.

SO far, newly inaugurated president Carlos Menem, riding a wave of public approval, has succeeded in halting the daily price hikes and the accompanying widespread uncertainty about how the average family will pay for its next meal.

After campaigning on a traditional Peronist platform urging higher salaries for workers but offering no real vision for solving the country's economic woes, Menem stunned the Peronist faithful by turning to the leaders of a giant multinational firm (Bunge & Born), a traditional enemy of theirs, to devise the new government's economic recovery plan.

He then appointed the selfproclaimed guru of free-market economics in Argentina, Alvaro Alsogaray, to be his leading economic adviser. Ignoring the opposition of the telephone unions, Menem gave Alsogaray's daughter the task of privatizing the state-run telephone company that has for years been ridiculed by Argentines, who have a host of horror stories to tell about how tough it is to make routine local calls.

Menem also helped restore the battered national psyche by joining world-renowned soccer star Diego Maradona and the top Argentine players in a benefit game to help the poor.

And, thanks to an emergency plan that included a wage and price freeze and massive increases in public utility tariffs, inflation has fallen steadily: to 33 percent in August, 10 percent this month. Economists are even predicting negative inflation for next month.

IF Menem can successfully implement the necessary economic reforms (privatizing the woefully inefficient state-run enterprises that cause the massive state deficits, allowing the central bank greater autonomy in setting monetary policy and overhauling the primitive system of tax collection that enables economic elites to get a free ride) Argentina will likely recover, though the process will inevitably be very long and painful for the nation.

Unfortunately, Alfonsin's reputation, battered by the haunting spectre of hyperinflation, probably won't. While Menem is now enjoying widespread public adulation, Alfonsin has become a virtual pariah in the Argentine political scene, an unfortunate occurrence that detracts from his substantial achievements and his profound commitment to restoring democracy to the country.

For not only did Alfonsin lead the nation out of the depths of the "dirty war" of the late 1970s and early 1980s and successfully prosecuted leading members of the brutal military junta responsible for the "disappearance" of more than 9000 alleged "subversives" during this period, but he also tried to democratize the unions. Predictably, his legislation calling for rank-and-file elections of union leaders was defeated by Peronist opposition in the Senate.

Ironically enough, most of the economic reforms which Menem is now undertaking (and receiving widespread public approval for) were first proposed by Alfonsin, only to be defeated by the Peronists in Parliament. Juan Peron must be laughing in his grave.