Argentines Smart at Cost of Restructuring
| BUENOS AIRES
ARGENTINA's foreign minister, Guido Di Tella, thinks reform is finally here.
The country is in the process of reforming what he calls one of the bases of corruption, the cumbersome regulatory process. "With the thousands of regulations and rules we had in the past, it was impossible not to have corruption," Mr. Di Tella says.
Part of a rapid, determined reform process which has gripped the country, the move to confront corruption is designed to reestablish Argentina as a responsible member of the world community. The cleanup has been spurred by an embarrassing defeat in a war with Britain, a military dictatorship that tortured and killed an estimated 9,000 to 15,000 Argentines, and a steadily declining economy that twice spun into hyperinflation in the late 1980s.
"These three main crises have produced a dramatic change in the attitudes of Argentines," Di Tella says. "These policies are not imposed on the people by some enlightened group. They're an expression of this new attitude."
In three years, the government of President Carlos Saul Menem has transformed the economic foundation of Argentina's society. It privatized unprofitable and inefficient state-owned businesses, streamlined the regulatory process, brought inflation under control, and reformed tax policy and the monetary system. Argentina also won a reduction in its debts to foreign private banks from $28 billion to $21 billion over a 30-year period. President Menem called it a "historic move" that will encourage new foreig n investment.
The basis for much of the economic reform is the 1991 Convertibility Law. It ties the government expenditures to revenues, forbids the Central Bank from funding the Treasury by printing new money, and has tied the value of the peso to the United States dollar on a one-to-one basis. The government backs this up with $12 billion in reserves.
"The Convertibility Law has one fundamental goal: That's to reestablish people's confidence in the economic system," says the Economic Ministry's Horacio Liendo, one of the authors of the law. According to the Economic Commission of Latin America, $9.3 billion flowed into Argentina in 1992. Although much of capital inflow was tied to the privatization of state-owned companies, it still marks a dramatic reversal from the 1980s, when capital flight reached a peak of $4.3 billion in 1989.
But the economic restructuring, which is central to Argentina's reinsertion into the world community, also faces serious challenges from within the country. Argentine industry, protected for the last 50 years by high import tariffs, is outdated, underfinanced, and struggling to compete in the new free-market atmosphere.
A flood of imported products have undermined Argentine companies' traditional markets at home, while the peso's parity with the dollar has reduced export potential.
The combination has enlarged the country's trade deficit to $6.8 billion in 1992. Many economists say the government will eventually have to devalue the peso to help prop up exports. But Economic Minister Domingo Cavallo has steadfastly refused, saying Argentines are simply going to have to invest more and work harder.
"For 50 years we've been living beyond our means building up deficits and foreign debt," Mr. Liendo says. "Now we are trying to get people to come to terms with the reality of our financial situation. It is difficult."
Di Tella admits the cost of adjustment is high, but he says it is a bargain compared to continuing with old policies that did not work. Di Tella would also like to see Argentina and its Southern Cone Common Market (Mercosur) partners - Brazil, Uruguay, and Paraguay - someday join the North American Free Trade Agreement.
"All this matter about the value of the peso, it's little compared with what it would mean to compete in a free-trade area," Di Tella says.
Nonetheless, many people in Argentina's middle class do not agree with this economic philosophy. While the government's economic program has brought stability over the last two years, it has not improved real wages, which average $500 a month.
At the same time, the peso's parity with the dollar has increased the cost of living to such an extent that Buenos Aires is now one of the world's most expensive cities, topping New York and Paris.
"What's happening with what they are doing, they're killing the middle class," says Janice Dubreuil, traffic director for a city transport company.
A public opinion poll taken for one of Argentina's largest dailies reflects an ambivalence toward the Menem government's policies. While 64 percent of Argentines believe the current economic stability is dependent on Menem's continuation in office, only 28 percent rate his administration as "good to excellent," and 34 percent rate it "poor."
But Di Tella dismisses such concerns. He contends the changes in Argentina are profound and irreversible.
"It's not that one recommends crisis, hyper-inflation, wars, defeats. But we weren't wise enough as a society to change and react then, but we are now," he says. "That's the basis of the strength of our new policies."