Bankrupt Argentina Bets on an Odd Savior

Argentina may yet avoid economic implosion. This once wealthy country is already bankrupt. It lacks enough hard currency reserves to pay for a month’s imports. Once the breadbasket of Europe, it recently saw food riots in the streets--and may again. Argentina is literally a country at the end of its financial rope.

Fortunately, rather than demagogic promises and a more-of-the-same approach, Argentina’s new president, Carlos Saul Menem, has initiated painful but necessary austerity measures and sweeping economic reforms. This comes as a surprise. Based on his record as governor of La Rioja Province, his campaign rhetoric, and the populist nature of the Peronist party, of which he was candidate, Menem had been expected to further pad the state payroll, increase state subsidies and make vast concessions to the Peronist-controlled labor unions, thus adding to already intolerable inflationary pressures. As one long-time U.S. observer of Argentina put it in May: “The only thing that will avert disaster in Argentina is that Menem do the opposite of what he is expected to do.”

That is precisely what he is doing. Rather than continuing to support inefficient state enterprises, Menem vows to privatize them. Rather than adding to state expenditures, he vows dramatically to reduce them--and to begin collecting long unpaid taxes, thus moving to balance the budget. Rather than giving the unions their head, he has made clear that they also must curb their demands. His basic message is that there is no free ride, that only through increased production and exports can Argentina save itself.

Rather than repudiating the foreign debt, as some had feared, Menem says Argentina will honor it. Interest payments will resume as soon as possible--though he asks creditor nations for flexible negotiating terms.

Most impressively, Menem has not appointed old party stalwarts to his cabinet. His first minister of economy was an opponent and an executive officer of Bunge & Born, one of Argentina’s only true multinationals, but Miguel Roig died suddenly on Friday. Menem is also reaching out to Raul Alfonsin’s party, the Radical Civil Union, and other former opponents. He is, in short, calling for a great national effort across all party lines. It will take nothing less.

That effort deserves support. Menem is following a course that would gladden the heart of former U.S. Federal Reserve Chairman Paul A. Volcker. It is in the interests of the United States that he succeed. U.S. Treasury Secretary Nicholas F. Brady’s plan--to encourage partial debt reduction in return for economic reforms--may not be enough. More comprehensive debt relief should be offered as long as Menem carries through with his reforms.

Menem’s is certainly a new and different kind of Peronism. Juan D. Peron, after all, was the man who created many of the most inefficient state enterprises, such as the National Railways, that have been a drain on the budget ever since. Peronism was populist and authoritarian. Menem’s strategy is neither and the new president argues that if Peron were alive today, he would embrace the current austerity program. Maybe. Whatever else he may have been, Peron was a pragmatist. Under current circumstances, he might also might be turning Peronism on its head. But that in no way detracts from the drama of the movement’s obvious metamorphosis.

The change is a healthy one and Menem has made a good beginning toward economic recovery. So far, his austerity program has the support of most Argentines, who seem to understand that their backs are literally to the wall. Their patience, however, has been severely strained; over the years, they have seen too many good beginnings end in the dust. Alfonsin, for example, made a most impressive start in 1983, even promising some of the same economic reforms now undertaken by Menem. But Alfonsin did not carry through; although his Austral Plan of 1985 did temporarily contain inflation, he never attacked the central problem: huge and endemic budget deficits. Alfonsin kept spending funds the Treasury did not have, until eventually he was forced to resume the massive printing of money, leading to galloping inflation and economic chaos. He seemed almost to believe that assuring a democratic climate was enough, that economic solutions would flow from that. They did not.

Alfonsin does at least leave behind a functioning democratic system. History will remember him for that, though at the moment Argentines are grousing, understandably, that they can’t eat democracy. Menem has a solid democratic base from which to begin. That is an advantage. One has the sense, moreover, that Menem is a craftier political tactician with, more important, a far better head for economics than Alfonsin. He is attacking the central problem: internal deficit. The odds now seem at least better than even that he will succeed where predecessors failed. If he does not, if this too ends in the dust, Argentina may erupt in unprecedented violence, the consequences of which no one can predict.