He’s not alone in that assessment. Many Argentine business people and economists have put aside their initial reservations about Kirchner, a left-of-center Peronist who took office five months ago. During his brief tenure Kirchner has nailed down an agreement with the International Monetary Fund (IMF) that rolled over more than $12 billion in loans for the next three years and established unusually flexible fiscal targets for the government. The president won more plaudits at home when he served notice on the mostly foreign private holders of Argentine government bonds that they can expect to lose at least 75 percent of their investment. The government is simply not in the mood to repay them at a time when most Argentines live below the poverty line. The defiant policies have drawn support from some unlikely quarters. There is a certain logic behind this, says economist Norberto Sosa of the U.S. investment bank Raymond James. “Every peso you spend on paying the debt leaves the country. If you give that peso instead to a poor person or a pensioner, he will spend it on consumption.”
The strategy seems to be working. The economy is projected to grow by 6.3 percent this year, a startling turnaround from 2002, when the gross domestic product shrank by a record 11 percent. Money is flowing back into Argentina: According to the Economy Ministry, investment increased by 40 percent during the third quarter of 2003, as compared with the same period last year, and several foreign companies have made notable acquisitions in just the past two months. The Canadian dairy giant Saputo announced a deal to buy the country’s third largest milk producer; the Mexican food conglomerate Bimbo has purchased a leading local bakery, and Carlos Slim, the Mexican telecommunications magnate, has snapped up a slew of properties ranging from an Argentine cell-phone company to radio stations and even a Buenos Aires zoo.
That vote of confidence from the private sector is mirrored by sky-high poll numbers for the new president. More than 80 percent of Argentines say they approve of Kirchner’s performance. To be sure, that endorsement has much to do with the president’s championing of human-rights issues and increased spending on social-welfare programs. But growing numbers of ordinary Argentines are also putting their money where their mouths are. When financial authorities tried to staunch a massive flight of capital in December 2001 by freezing savings accounts, millions of Argentines vowed never to deposit another cent of their earnings in local banks. But restrictions on bank withdrawals have since been removed and deposits are once again on the rebound, a trend that would have seemed unthinkable only a year ago. “The recovery of confidence in the financial system was quicker than had been foreseen,” says Carina Lopez Espino, financial-services director at the Buenos Aires office of Standard & Poor’s. “The critical stage has passed.”
Kirchner’s three-year deal with the IMF ranks as his biggest coup by far on the economic front. Relations between Argentina and the IMF hit rock bottom in late 2001 after the country’s interim president, Adolfo Rodriguez Saa, suspended further payments on its $132 billion debt. That represented the biggest sovereign debt default in history and consigned Argentina to the ranks of Iraq, Zimbabwe and other widely shunned deadbeats. But soon after Kirchner’s Inauguration, he received an IMF delegation led by the Fund’s managing director, Horst Kohler. Kirchner reportedly gave his guests a tongue-lashing, saying that the IMF had to shoulder its share of the blame for Argentina’s crushing debt buden.
In hindsight, Kirchner’s scolding words may have helped set the tone for the negotiations that followed. The new agreement with Argentina, unveiled in September, seemed designed in part to answer critics who fault the IMF for treating developing debtor countries too harshly. The accord obliges the government to generate a primary budget surplus of 3 percent in 2004 and to authorize hikes in the rates charged for electricity, phone service and other utilities. But an apparently chastened IMF did not set primary surplus targets for the second and third years of the accord as it has usually done in the past, and Fund officials are not taking sides in the upcoming showdown between Argentina and its disgruntled private creditors. The IMF’s kinder, gentler approach is reflected in its words of praise for Kirchner’s economic advisers. “In the last nine months you’ve seen prudent monetary policy and spending levels being held firmly in check at both the provincial and federal levels,” a senior IMF official in Washington told NEWSWEEK. “They have built up a macroeconomic track record, and there is broad acceptance of what needs to be done.”
But not everyone is pleased with the Argentine president and his policymakers. Thousands of bondholders cried foul last month when Economy Minister Roberto Lavagna offered to pay only a quarter of the $94 billion the government owes to those private creditors. “The proposal is unacceptable,” declared Nicola Stock, chairman of a group that represents more than 90 percent of Italian investors currently holding Argentine bonds. American investor Kenneth Dart has taken Argentina to court, and a judge in New York gave Buenos Aires 45 days to reach an agreement with creditors or face a ruling that would give Dart the go-ahead to claim full repayment of his bonds plus interest–a figure estimated to be $700 million. European investors have tried to freeze Argentine assets held abroad. The Buenos Aires newspaper La Nacion reported last week that Kirchner canceled plans to visit Germany this month in part because of concern that the presidential jet Tango Uno, might be confiscated upon its arrival in Hamburg. He sent Vice President Daniel Scioli in his stead–on a commercial flight.
Independent analysts have described Lavagna’s proposal as an opening bid in negotiations that are likely to take months. The Argentines want to clinch a detailed agreement with private creditors by the middle of next year, but that won’t be easy. And not all the critical voices aimed at Kirchner are coming from Europe, Japan and the United States. About 43 percent of the government bonds are held by Argentine investors, the bulk of them private pension funds that are warning of impending catastrophe for millions of individual retirees if the funds receive only a quarter on every dollar that is owed them. Colombian President Alvaro Uribe is openly worried about the fallout that the proposed deal with Argentina’s private creditors could have on the rest of the region. “Argentina’s actions may have a negative effect on foreign investment and increase interest rates,” he warned in a radio broadcast last month. “It is now feared that foreign investors will adopt a hostile attitude towards Latin America.”
If that happens, Argentina’s recovery will be very brief. Already there is talk of an economic slowdown by the second quarter of next year, when industry is working at full capacity and new investment begins to dry up. Little foreign credit is available, and the banks are still recovering from the conversion of their loan portfolios from dollars into sharply devalued pesos. One of every four Argentines is in extreme poverty, and economist Luis Secco reckons it will take the country more than a decade to regain the economic output levels of 1998.
An aide is supposed to have once whispered into Julius Caesar’s ear that glory is fleeting–and nowhere is that truer than in Argentine politics. It is still early in the Kirchner era–he has more than four years left in his term, and the jury, as one U.S. State Department official puts it, “is still out on almost everything.” But there is a sense that after years of recession and occasional bursts of political unrest, Argentina is back on track, at least for now. “When the government begins to repay the debt, renegotiates the tariffs of the privatized utilities and sends signals to the big investors, that’s when we’ll see what sort of country we are going to have,” says Alejandro Elsztain of Cresud. “Kirchner is taking tough measures, but they give the country the possibility of growth in the future.” And that by itself is a big step in the right direction.
