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CIAO DATE: 04/03
Argentina Alert: Challenges for the New Leadership
William Perry *
Hemisphere Focus: 1998-2000
Series VIII, Issue 4
March 17, 2000
Overview
Argentina's unquestioned and easy transition of presidential power from the Partido Justicialista (PJ) to the Alianza Democrática demonstrates how far it has come from its tortured past. The two Peronist governments of President Carlos Menem (1989-1999) obviously effected an historically important transformation of the country's economic model along neo-liberal lines and toward a pattern of constructive international engagement. This process—together with the existence of strong political parties—has also served to institutionalize democratic practice. Fernando de la Rúa's inauguration on December 10, 1999 represents a further indication of continued macro-political stability. His strong new cabinet is evidence of a decided inclination to follow the path of prudent, market-oriented policies charted over the course of recent years.
Yet the new incumbent faces a tactically challenging situation and his term in office is not likely to prove an easy one for the government or Argentine society. The country's economy is recovering from the sharp recession of 1999 and it will continue to do so unless fresh difficulties develop beyond its borders. But there is public impatience with years of sacrifice that readily foreseeable levels of growth is unlikely to fully dissipate. In addition, serious problems need to be addressed in areas ranging from public security, corruption and the integrity of law enforcement institutions to budget balancing, economic competitiveness, foreign trade, and long-term social and educational issues.
In this quest, the de la Rúa administration is presently popular but does not have enormous room for political maneuvering. The diverse coalition that elected it includes elements that are not notable for their past attachment to neo-liberal canons and expect appreciably more in the way of government-sponsored efforts to relieve the country's social problems. Moreover, the new occupant of the Casa Rosada does not enjoy a majority in Congress nor at the provincial level. On the other hand, the Peronist opposition—as represented by governors of important provinces, like Carlos Ruckhauf (Buenos Aires), Fernando de la Sota (Cordoba) and Carlos Reutermann (Santa Fe), as well as ex-president Menem—now possesses a vested interest in the continued functioning of Argentina's new politico-economic model. Their cooperation on issues essential to the model's maintenance is, therefore, to be expected, at least in the short run. On the economic front, the de la Rúa administration is likely to hold the line to see if additional application of neo-liberal precepts can finally bring about the sustained and dynamic pattern of economic growth for which an overwhelming majority of the Argentine people has been painfully waiting so long. In other areas the new government has opportunities—indeed, a real need—for fresh initiatives if it is to effectively capitalize on the new president's currently high standing and redeem the promises that he made during the recent election campaign.
The Electoral Outcome
As widely predicted Fernando de la Rúa easily won over Peronist standard-bearer and outgoing governor of populous Buenos Aires province, Eduardo Duhalde, on October 24, 1999. The outcome of the long Argentine campaign season—never really in doubt (see the pre-election report in this series)—was a strong, 48.5 to 38.1 percent triumph for the opposition candidate. Former Finance Minister, Domingo Cavallo, garnered 10.1 percent of the vote—and the remaining minor party entrants only 3.3 percent more. Under Argentine law, this meant that the issue did not even have to go to a run-off round and de la Rúa was inaugurated on December 10.
In simultaneous balloting for Congress the Alianza Democrática also did well by Argentine standards. Its number of representatives in the Chamber of Deputies increased—from 111 to 124—but not quite to the point of securing a majority in that 257-seat body. And, as was the case during the final two years of the Menem government, it will be necessary for the new occupant of the presidency to seek support from minor parties to win votes on the floor of the lower house. On the Senate side, there was never a chance of overcoming a great Peronist advantage—leaving de la Rúa in a position where he will need to carry out continuous negotiations with the principal opposition party in order to see his program advance. The line-up is even more unfavorable at the provincial level—where the Partido Justicialista enjoys overwhelming predominance, including over key jurisdictions like Buenos Aires, Cordoba, Santa Fe, and Mendoza. On this plane, the Alianza's greatest disappointment was certainly the 48.3 to 41.4 percent triumph of outgoing Vice President Carlos Ruckhauf over Graciela Fernandez Meijide in the closely contested Buenos Aires gubernatorial race. (Ms. Fernandez Meijide, who lost the presidential primary battle to de la Rúa and declined a vice presidential bid on his ticket, is a figure of great importance in the broad leftist coalition FREPASO and its decision to enter into coalition with the Radicals.)
The New Administration Takes Over
The Alianza Democrática coalition that backed de la Rúa comprises three rather distinct elements. President de la Rúa himself heads the Radical Party's centrist wing, which has been quite supportive of the liberalizing changes introduced by Carlos Menem over the course of the past decade. Yet much of its cadre remains attracted to the more statist vision that came to grief under the administration of Raul Alfonsín (1983-1989) and is still led by that aging patriarch. FREPASO, on the other hand, is itself a coalition of smaller parties from the left of the Argentine political spectrum that rose to prominence during the Radical Party's partial eclipse at the height of Menem's popularity. FREPASO leaders are all historic critics of the market reform process. They have also learned to moderate (or, perhaps, just disguise) these views in order to avoid giving offense to centrist opinion in contemporary Argentine politics—which embraces the economic stability of recent years—and accommodate itself to a candidate with the wider appeal of de la Rúa.
Because of the diverse nature of Alianza Democrática, much interest was focused upon the ministerial composition of the new government—as an indicator of the balance of power within it and the lines of policy likely to be pursued. Upon its eventual unveiling, the new cabinet appeared to be a very strong one—reflecting both de la Rúa's present dominance over his allies and marked inclination to take a centrist line, including continued adherence to an austere, market-oriented approach in the critical economic realm.
The key position of Finance Minister went to José Luis Machinea, who—although an important actor in the Alfonsín government—professes to be a "born-again" convert to the precepts of free enterprise. Two frequently mentioned alternatives to Machinea as the occupant of that post—known for even more vigorous advocacy of market reform policies—are also to be found in the new cabinet line-up. The widely respected Adalberto Rodriguez Giavarini now serves as Argentina's Foreign Minister. Rodriguez Giavarini is a professional economist and former federal deputy, with a reputation for uncompromising honesty and plain speaking—who was one of de la Rúa's chief aides at the beginning of his period as head of the Federal District's government. His appointment seems in line with the apparent intention to continue the past course of Argentine foreign policy—including close cooperation with the United States. Meanwhile, tough-minded Roberto Lopez Murphy, also an economist of renown, was somewhat unexpectedly tapped for the challenging post of Minister of Defense. His duties will involve keeping the armed forces reasonably content with limited resources and a purely professional role, geared principally toward international collaboration against new-age security threats. Another key actor is a de la Rúa intimate, Horacio Gallo, at the domestically important Ministry of Infrastructure.
Of course, the other factions of the Democratic Alliance also required representation in government posts. In addition to Carlos "Chacho" Alvarez, who as de la Rúa's running mate was elected to the vice presidency, the frepasistas ensured that Graciela Fernandez Meijide be appointed as Minister of Social Action. Individuals like Federico Storani in the Health Ministry represent the Alfonsín wing of the Radicals in the new government.
There was little time between the inauguration of Argentina's new authorities and the advent of the Christmas holidays—followed by a traditionally long January summer vacation season. The principal issue that had to be resolved by year's end proved to be finalizing a national budget for 2000. This was accomplished after some considerable wrangling with Congress. The result is a quite austere set of spending guidelines, which are necessary in view of Argentina's difficult fiscal situation, but likely to give rise to a good deal of social complaint, especially if the economy does not promptly recover as hoped. The actors on the country's transformed political stage have now returned from the Southern Hemisphere's Christmas and summer vacation schedule and the new government must now begin to operate in earnest.
Outlook
Despite enormous effort and great macroeconomic improvement since the disastrous pre-1989 period, Argentina is now attempting to recover from its second severe recession of the past ten years. The first was occasioned by the Mexican peso crisis of 1995. Just as improvement seemed to begin again, the country was hit by the fallout from the Asian and Russian problems of 1998, leading directly to devaluation and recession in Brazil. This cycle has been frustrating for a majority of the population, which faces a high cost of living on modest wages—not to mention the swollen ranks of the unemployed or those who have suffered from cutbacks in government programs—and was an important factor in the Peronists' defeat. Yet the present situation cannot be easily remedied by action on the part of the de la Rúa administration and, in large measure, its political fate will depend on holding the line with respect to spending in the hope that economic recovery comes about more or less naturally from improvement of conditions abroad.
These uncomfortable circumstances are complicated by a noticeable deterioration of relations with Brazil that appear to threaten the future of the heretofore-successful Mercosur trading zone. Argentina's decision to peg the peso by law to the U.S. dollar long ago put that currency in an overvalued state—with the hope that improvement of competitiveness would gradually correct overvaluation over time. While Brazil was similarly trying to sustain the real (after 1994), Argentine products did quite well there—to the point that it became the destination of over 30 percent of Argentina's exports. But Brasilia's unexpected decision to devalue in January of 1999 (accompanied by a severe recession there) sharply reduced this trade, and opened Argentina to an influx of cheaper Brazilian goods, while disadvantaging it in third-country markets and impelling some multinational firms to relocate in Brazil.
This presents a very difficult challenge for Argentina's diplomacy and business community to overcome, particularly in light of the extremely hard-line attitude adopted by the Brazilian government (which is simultaneously trying to lift its own economy out of recession). Indeed, the situation could get worse if the second Cardoso administration's seeming inability to further advance its liberalizing agenda results in additional devaluation over coming years. And the only solution for Argentina may be opening up more demanding but dependable markets further afield.
Given the austerity imperatives created by a combination of a recession and a knot of debt payments required to maintain Argentina's standing with the international financial community, there is not likely to be much left over for social programs or keeping afloat poorer provinces headed by a pack of clamoring governors. This will tend to erode the de la Rúa administration's initial popularity over time, particularly if dynamic growth does not soon return to the economy. It could open up rifts within the ruling coalition—as the alfonsinista Radicals and FREPASO have much more inclination to sacrifice economic orthodoxy to socio-political pressures than does the present cast of cabinet members.
There are also a host of other difficult issues on the new administration's plate. Deteriorating public security—especially in the environs of Greater Buenos Aires—was much on the minds of voters during the recently concluded campaign. And this is related to the state of law enforcement agencies and judicial institutions that are widely seen as ineffective, venial and, indeed, themselves involved in criminal behavior. Political corruption allegedly reaching into the higher levels of the Menem administration was also a potent issue in last year's election. In fact, the essence of de la Rúa's winning message was that he would carry on with the fundamental elements of the neo-liberal development model—but under more honest and socially sensitive management. Also, the de la Rúa administration has apparently decided to take on the task of reforming the country's antique labor legislation. This was an area that even President Menem, at the height of his power, deemed it prudent not to touch—presumably because of his party's union base. It is an issue of greater importance now, since improved competitiveness is about the only way that the peso's painful overvaluation can be prudently ameliorated. And there are preliminary signs that the Peronist leadership might prove willing to acquiesce to necessary changes in this sensitive realm.
These are areas where the new authorities can take new initiatives, with the prospect of benefiting from them politically. Setting a good example for probity and transparency should comprise a substantial part of any such effort. But it is unlikely to be accompanied by any rigorous punishment of previous transgressors—because this is not de la Rúa's way and because he needs significant levels of cooperation from the Peronists in Congress to run a successful government. Judicial and legal reform are areas where much productive work could be accomplished. Improving the ethical standards and efficacy of police forces is a more politically difficult undertaking because much of the responsibility lies at the provincial level. On the other hand, Peronist governors should have their own genuine interest in this matter—especially Carlos Ruckhauf, who saw severe problems in this area hobble the presidential candidacy of his predecessor. Significant changes in the existing labor regime would also bring an important long-term benefit to the country's economic prospects.
Argentina's recently inaugurated president can expect a reasonable degree of collaboration from opposition elements—at least in the short-run. He is presently popular and has put together an outstanding team—sparking a perceptible up-tick in national spirits. The Peronists will not be backward in taking political advantage from any shortcomings of the de la Rúa government and cannot afford to completely alienate their labor base. But the overwhelming majority of their leadership does not wish to see any fundamental failure of the legacy so painfully constructed over the course of the past decade. The country's smaller provincial parties, which hold the balance of power in the lower house of the national legislature, can be dealt with by any reasonable chief executive holding the powers of purse and patronage in Buenos Aires. And the only other force on the scene (a modest one)—former Finance Minister Domingo Cavallo's Alianza para la República—strongly supports the themes of market economics and honest government. Indeed, de la Rúa's principal problems could come from within the ranks of his own coalition, if social conditions do not soon improve and if his relationship with the Peronists appears too cozy.
Political contention, however, is a constant in democratic political life that will manifest itself clearly in May elections to select a successor to Fernando de la Rúa as head of the Federal District government. And over the longer term, both Menem and governor rivals will strive to lead Peronism back to power in the elections of 2003. But prospects of this occurring naturally depend upon a number of currently unforeseeable factors—most notably, the perceived success of the de la Rúa government in dealing with contemporary Argentina's extensive agenda of problems and opportunities. Overall, the political and economic fundamentals appear to be quite sound—especially compared to others in an increasingly troubled region. But the tiller will require a firm hand and a disquietingly large number of the variables are external and, therefore, beyond the ability of any Argentine leader to control.
William Perry is a senior associate of the CSIS Americas Program and president of the Institute for the Study of the Americas and William Perry and Associates. Mr. Perry has an extensive track record of involvement in Colombian, Venezuelan, Argentine, Brazilian, and Southern Cone affairs and the analysis of elections there and in other Latin American countries. He has also served as a senior Latin American specialist for the Senate Foreign Relations Committee, director of Latin American affairs at the National Security Council, and chairman of the Latin America Policy Working Groups for the Bush-Quayle Campaigns of 1988 and 1992. Back.
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