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After these elections, don't cry for Argentina

By Peter Hakim / October 28, 1999



Last Sunday's elections were strong evidence that democracy is taking root in Argentina. Most striking about the elections was how unremarkable they were. This in a country that had not in recent memory witnessed the transfer of power from one elected administration to another, until Raul Alfonsin turned the presidency over to Carlos Menem in 1989.

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The elections were fully free and fair. Opposition candidate Fernando de la Rua, the mayor of Buenos Aires, won handily and will take office without protest or fanfare.

The majority of Argentines now agree on the political rules and share a common outlook on economic issues. This is good news for Argentina's future, though politically and economically there is much progress yet to be made.

The past decade produced Argentina's best economic performance since World War II. It has grown by about 5 percent a year since 1991, nearly double the average for the rest of Latin America. Out of 20 Latin American countries, only Chile did better. Inflation in Argentina has been the lowest in the region; this year it will be less than 1 percent.

These achievements did not come easily. They required the remaking of the Argentine economy, the revamping of policy, and the rehabilitation of the nation's financial institutions. During Mr. Menem's two terms (1989 to 1999), nearly every state-owned industry was privatized; barriers to imports and foreign investment were dismantled; and, for the first time in generations, discipline was imposed on government spending.

The cornerstone of this reform program was the so-called "convertibility" plan, which pegged the Argentine peso to the US dollar one-for-one, and allowed for the free exchange of the two currencies. Nothing was more crucial to the country's fight against inflation - or to building confidence among foreign investors, who provided the capital that fueled Argentina's economic expansion.

Despite these changes and the impressive gains they produced, not all is well with the Argentine economy. First, it is too vulnerable and volatile. In 1995, the Mexican peso collapse sent Argentina into a tailspin; this year it was the Brazilian currency crisis. Both provoked an economic contraction of some 3 percent.

Second, the nation's economy is not generating enough jobs. Unemployment has not fallen below 12 percent of the work force for the past half dozen years, and has been as high as 18 percent.

Critics of convertibility blame the peso-dollar link. They want Argentina to shift to a floating exchange scheme, as has Brazil, Argentina's main trading partner, and nearly every other Latin American country. This change, they assert, would allow greater flexibility in addressing unemployment problems and adjusting to economic crises.

But the main difficulties for Argentina's economy are the institutional rigidities that reform efforts have left untouched because they are so politically charged. They include Argentina's tradition of tax evasion; the huge subsidies provided to trade unions; costly labor regulations that discourage new hiring; and laws that allow uncontrolled spending by provincial governments. Getting rid of this dead weight - which keeps the Argentine economy less productive, less flexible, and more vulnerable than it has to be - should be the core of Mr. de la Rua's economic agenda.

The political agenda is more daunting. Argentina has made some significant democratic advances, including last weekend's election. Another sign is the exclusion of the armed forces from politics. Yet Argentines increasingly distrust politics and politicians. Polls report that fewer than one-fifth of the citizens trust their police or judges. More than three-quarters have little or no confidence in the president, Congress, or political parties.

Nearly everyone believes corruption is endemic. The courts and tax system are national scandals. Menem's dogged efforts to run for a third term despite a clear constitutional prohibition did not help to build respect for the rule of law or the presidency.

In the past 16 years, Argentina's progress has been impressive by any standards. But its economic performance still falls short, and it has yet to become a robust democracy.

Mr. Alfonsin restored democratic practice to Argentina. Menem set the economy on course. De la Rua has the most difficult challenge of all - to reform Argentina's economic and political institutions so they are efficient, honest, and accountable. That is the only way to provide a firm basis for democracy and long-term prosperity.

*Peter Hakim is president of the Inter-American Dialogue in Washington.

(c) Copyright 1999. The Christian Science Publishing Society