Duhalde's Dilemma: Argentina in Crisis. (Global Notebook)
Theophanous, Georgios, Harvard International Review
Argentina's presidential elections are scheduled for April 27,2003. In theory, the elections represent an opportunity for Argentina to implement the political and economic changes necessary to reverse a four-year-long recession. But the circumstances of the election and the legacy of Eduardo Duhalde's leadership will make progress difficult.
The major issue in the election will be how to reverse the worst economic decline Argentina has seen in 50 years. Gross domestic product (GDP) has been dropping since I 999, and rampant inflation in 2002 has caused the price of some food products to nearly double. Overall, the price of basic goods rose 75 percent, one in five Argentines is unemployed, and the combination of inflation and unemployment has left many scrambling for survival. Starvation has become a major problem, with citizens forced to the streets to beg or scrounge for food, There is no sign of recovery.
Argentina's economic problems began in the mid-I 990s. As the value of the US dollar rose during the US economic boom, the Argentine peso, at that time artificially pegged to the dollar, also began to rise, resulting in massive trade deficits. To cover the deficit, the government began to borrow money heavily, which caused interest rates to rise. Business began to slow down, and with banks increasingly reluctant to lend money, the entire economy began spiraling into disarray. By November 2Q01 ,Argentina faced unaffordable interest payments on its debt. With GDP sinking at nearly I 0 percent per year, President Fernando de Ia Rua and Finance Minister Domingo Cavallo turned to the International Monetary Fund (IMF) for assistance. However, the IMF, which had for some time financially supported Argentina, refused a new loan, citing major needed reforms in the Argentine economy and poor economic management by the government. Argentina was forced to default on its payments; soon after, President de Ia Rua resigned in response to public pressure.
His successor, Eduardo Duhalde, inherited a country on the verge of collapse. Argentina had lost fiscal credibility, had seen its currency dramatically devalued in the span of a few weeks, and was, quite literally, broke. Duhalde's initial rhetoric was promising, but his administration has done little to fix Argentina's problems. While the economy has recently stabilized, it is still far below its mid-1990s levels, and poverty rates have not improved at all.
The Duhalde regime, besides being unable to resuscitate the economy, has set two poor precedents for the next Argentine administration. First, it has used defaults as a means of forcing loans from the IMF, instead of building investor and international confidence by implementing reforms. In November 2002, it defaulted on over 90 percent of an US$880 million payment to the World Bank, and in January 2003 again defaulted on payments due to Inter-American Development Bank. Finance Minister Roberto Lavagna stated that Argentina would make no more payments until the IMF agreed to a loan, a policy that amounted to blackmail. While the IMF did roll over billions of dollars of due payments until after the elections, the strategy has severely damaged Argentina's reputation. As the IMF clearly stated, Argentina still has major long-term problems, and the roll-over is only a temporary reprieve. In Argentina, though, Duhalde has trumpeted the deal, and his blackmail strategy, as a success. …