EARLIER this year Argentine President Ra'ul Alfons'in initiated a comprehensive new economic stabilization plan. Since then inflation has been lowered to 3 percent monthly. Although the country may well be sliding into recession, with real wages falling, a great majority of the Argentine people think that Mr. Alfons'in is doing what had to be done to put the nation on a sound economic footing. Polls show a relatively optimistic mood within the country. The upshot: President Alfons'in is enjoying widespread popularity.Skip to next paragraph
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In this still incipient democracy, Mr. Alfons'in appears to be a unique alternative to the political leadership of recent years. He is seeking to upgrade the nation's economy. He has allowed the civil courts to try the top nine officials of the prior military regime. He is trying to professionalize the military forces.
How long will the current public enthusiasm last? Many factors contribute to support the assumption that it will last at least until the end of the year. First, Alfons'in's majority Radical Party is facing a fragmented Peronist opposition which lacks the requisite leadership and innovative solutions for dealing with Argentina's difficult economic challenges. The Radicals appear likely to win the Nov. 3 elections, expanding their majority in the House. Second, wages and prices will remain frozen until th e elections are over, thus maintaining -- so far as the public is concerned -- a sense of economic stability. Third, the military officers are likely to be convicted before the end of the year.
Granted that the current political and economic setting promises some stability -- which Argentina has needed -- what about the long haul, the national setting after the beginning of next year? Is the present economic strategy sustainable?
Unfortunately, there are no easy answers to such questions. The new stabilization plan, set up in June, was based on three principles: reduce the fiscal deficit from 13.1 percent to 2.5 percent of the GNP, freeze wages and prices, and establish a new currency, the austral.
Still, structural problems continue to trouble the Argentine economy. The nation's high tax burden, for example, needs to be reduced. This could be achieved by selling many of the 524 state-owned enterprises, most of which run deficits. Mainly privileged monopolies, these corporations control more than 50 percent of the country's gross national product. The financial needs of these state enterprises lead to a crowding out of private investment. Private investment has been diminishing dramatically in rec ent years. The government has lowered its expenditures by reducing the real wages of the 2 million state employees and also by dampening public investment. But these actions do not reflect a fundamental reform of the relationship between the state sector of the economy and the private sector.
It must also be noted that the economic reform plan announced this past June includes a heavy anti-export bias because import and export duties are being used to finance the public sector.
What all this quickly suggests is that Mr. Alfons'in faces serious challenges at the beginning of next year. That said, it is evident that a slow process of trial and error is taking place in Argentina. When President Alfons'in was first inaugurated, in December 1983, his public statements asserted that a better distribution of wealth would solve Argentina's most challenging economic problems. He also spoke about imperialism and how the interests of the industrialized ``North'' were squeezing developing
countries through the repayment of external debt.
Now he has realized that in order to distribute wealth, the country needs to grow. This can only be done through private investment, either national or foreign. Alfons'in and his key economic officials are learning that economic reality has little to do with good intentions.
But most important, the country as a whole is understanding that Argentina's most pressing problems are not coming from abroad -- and that characteristics of competition, creativity, and entrepreneurialism must all be tapped to build for a better Argentine future.
Martin Redrado is an Argentine economist currently studying at the Kennedy School of Government at Harvard University.