Plainspoken and passionate, Elisa Carrió has emerged as one of the few fresh faces on the creaky Argentinean political scene. As the head of a 17-month-old party called Alternativa por una República de Iguales, or ARI, the 46-year-old constitutional lawyer and presidential aspirant has been causing sparks of late by railing against Citibank, Congress, former Argentinean president Carlos Menem and the various and sundry “mafias” that are intent, she insists, on exploiting her country.
“We are not pragmatic,” she declares. “We are a party of strong convictions and coherent principles. The parties that have governed have had lots of experience, and look where that has got us.”
Carrió remains a long shot to win the election for president, scheduled for March 2003, but her unexpected popularity -- she claimed more than 12 percent of the vote in a mid-September poll by Latin American polling organization Ibope OPSM, trailing only former interim president Adolfo Rodríguez Saá and his 18.9 percent -- testifies to the widespread disenchantment with the political system. In the wake of the largest sovereign default in history and battling a wrenching depression, Argentineans know that there can be no solution to the country’s economic crisis without real political leadership and genuine consensus. For the moment, though, those rare commodities are nowhere to be found. At least ten candidates are running for president to succeed Eduardo Duhalde, but none of them offer the promise of anything more than a fragile regime that is unable to address the country’s political paralysis and deep economic stagnation.
One result: Argentineans are once again asking fundamental questions about the structure of their society, the nature of their national identity and, not least, the goals of their government -- questions that first emerged when the country’s extraordinary wealth began to dissipate in the 1930s. Unlike Brazil, Chile or Uruguay, Argentina has had no national direction for decades, bemoans Fernando Moiguer, a sociology professor at Universidad Torcuato di Tella in Buenos Aires. It’s a sentiment that has become all too common in boardrooms and in the streets, where demands for credible new leadership and genuine political renewal are growing more strident.
And if the cries go unheeded? Argentina could confront not only a deepening economic depression but explosive levels of social upheaval and political unrest. From such a cauldron some observers fear that a Perón-style strongman could well appear.
“Until the year 2000 I thought Argentina’s problems were political and economic; now I am convinced that they are historical, cultural, even anthropological,” says political analyst Rosendo Fraga, who sees no quick fix. “No matter who wins the next election, it will be another weak, transition government and very probably one that won’t last out its term.”
Whoever wins the upcoming election will face daunting economic challenges. GDP declined 23.5 percent between 1998 and 2001, and the IMF forecasts it will drop a further 16 percent this year. The government’s default on $140 billion in sovereign debt and a steep devaluation of the peso left the country without access to credit, sparked capital flight that shows no sign of easing and threw the banking system onto life support. Before the one-to-one currency peg was abandoned in January, the dollar and peso were equally valued; today the dollar is worth more than three and a half times as much as the peso. Price increases lag behind the devaluation because of the deep fall in demand, but inflation could hit 80 percent by year-end, up from 0.7 percent two years ago.
“The country is in a depression, and there will be years with very little available credit,” says Manuel Sacerdote, the head of BankBoston in Argentina. Adds sociologist Moiguer, “This is a rich country that has become a poor country; our highest productivity is in our ability to produce poor people.”
A contentious December 2001 decision by the government, then led by Fernando de la Rúa, to freeze bank deposits enraged Argentineans and further complicated the country’s economic plight. The freeze, which trapped about $7 billion in checking and savings accounts and an estimated $35 billion in time deposits, was challenged by individual depositors in federal courts in the provinces. On February 1 the Supreme Court, acting on a case brought by the province of Corrientes, declared the freeze an unconstitutional violation of property rights. While the ruling was limited in its scope -- it did not lift the freeze for all depositors -- the action opened the floodgates as court injunctions from all over the country forced banks to fork over dollars to individual claimants. The result: By the end of August, some 55,000 depositors had collected about $8 billion.
The outflow of central bank reserves to some depositors -- the very lucky and the very few -- alienated and infuriated many Argentineans, who insist that the freeze be lifted for everyone. “The justice system is completely corrupt. The injunctions are working just for the big shots,” says Manuel Gómez, a 54-year-old mechanic in Buenos Aires. Planning to go back to Spain after 50 years in Argentina, Gómez sold his business in mid-2001 and put $100,000 in Banco Bilbao Vizcaya Argentaria, thinking it a haven. The courts ordered that BBVA pay him 50 percent of his total holdings, but the bank has appealed. Gómez has found his gas, electricity and telephone service cut off.
Adding to the turmoil, the International Monetary Fund has insisted that the freeze be lifted. The IMF argues that the court challenges threaten the stability of government monetary policy.
The economic debacle has engulfed the leadership of both traditional political parties. Between December 20 and December 30, 2001, two presidents -- de la Rúa, elected with the support of his own Unión Cívica Radical and the leftist Frente del País Solidario, or Frepaso party, and Rodríguez Saá, appointed by the Peronist-controlled Congress -- resigned. Rodríguez Saá was succeeded by Peronist Duhalde on January 2, 2002, for a term to end in December 2003. He assembled a transition cabinet that includes Economy Minister Roberto Lavagna. On July 2 Duhalde, realizing that an unelected government without deep congressional support could not meet the demands of the crisis, announced that elections for his successor would be held in March 2003, eight months ahead of schedule.
Among the presidential hopefuls, Menem, president from 1989'99, attracts the most media attention but lags behind five other candidates in the polls. Accusations that he accepted a $10 million bribe for helping cover up suspected Iranian participation in bombing attacks against the Israeli embassy in Buenos Aires in 1992 and a Jewish community center in 1994 resurfaced on the front page of The New York Times in July. Menem has repeatedly denied wrongdoing, but since admitting that he has a Swiss bank account, his support has eroded. According to the mid-September Ibope poll, only 7.1 percent of the electorate intends to cast a ballot for the former leader.
Ranking first in the polls, Rodríguez Saá is a suave millionaire who made his fortune in family real estate and media businesses in his home province of San Luis, where he also served as governor. The 55-year-old has attracted support from both sides of the political spectrum -- from the right, most notably from former-army-rebel-turned-politician Aldo Rico, and from the left, where combative transportation union leader Hugo Moyano has rallied to support him.
It’s a measure of the confusion and despair in Argentina that Rodríguez Saá dominates the competition in spite of his brief stint as president. In those seven days he declared default, flirted with populist economic policies despite his 18-year record as a conservative provincial governor and appointed several cabinet members who are currently defending court charges of corruption. Although many in the private sector are convinced that like Menem in the early 1990s, Rodríguez Saá will adopt market-friendly policies if elected, others fear that he will cling to his populist rhetoric and authoritarian allies. Political analyst Fraga frets that he may turn out to be an Argentinean version of Hugo Chávez, Venezuela’s president.
Carrió has been waging a strident anticorruption crusade since the mid-1990s. A member of the congressional committee investigating money laundering, she claims credit for making public information that led to cases against six banks, including Banco de la Nación Argentina and Citibank, as well as ex-president Menem. The press has labeled Carrió a populist. In an interview with Institutional Investor, she says that ARI stands for transparent capitalism with strong state controls to combat corruption, improve income distribution and fight poverty. Though short on specifics, Carrió advocates a tough negotiating stance with the IMF, whose “recipes were proven ineffective and led to Argentina’s destruction,” she says.
Though Carrió inspires some enthusiasm, all the presidential choices seem dispiriting to most Argentineans, which is why week after week demonstrators fill the city plazas with cries of “Que se vayan todos!” a Spanish version of “Throw the bums out.”
Although the political environment could not seem bleaker, some optimists believe that the worst of the Argentinean economic crisis may have passed.
Foremost among them, soft-spoken Economy Minister Lavagna makes a spirited case that there is “normality” in the Argentinean economy and that a recovery has already begun. “What do I mean by normality?” says Lavagna, who is a Peronist. “Well, from the beginning of the year through April, there were 85 working days, during which the financial markets, stock exchange and property markets were closed for 24 days.” In the three months following his appointment on April 28, there was not one bank holiday. This, he argues, is just one example of how his team is stabilizing the economy. Other positive signs include the prospect of higher than expected tax revenues, lower than expected inflation, stabilization in bank currency holdings, a positive trade balance and the highest current-account balance in Argentina’s history.
“The economy has touched bottom,” Lavagna says.
Citing recent data on construction and retail sales, economist Pedro Lacoste of consulting group APL Economía in Buenos Aires remarks that “the economy is no longer in free fall.” Secretary of Finance Guillermo Nielsen says that the goal of the government is to “underpromise and overperform.” His team is developing financial instruments to help stem capital flight and reduce the risk of government intervention in exchange markets. Still, he concedes, “it will probably be years before foreign investors return to Argentina in any significant number.”
The bank freeze imposed by de la Rúa is by far the most controversial economic move by the government. Its effect was compounded by the administration’s devaluation of the currency and the “peso-ification” of deposits at a rate -- 1.4 pesos to the dollar -- that markets quickly spurned, pushing the value of the peso down to 1.6 to the dollar, en route to the current 3.5.
The freeze on bank deposits has been a source of conflict between Economy Minister Lavagna and central bank president Aldo Pignanelli since Pignanelli was appointed in June. Although both have sought publicly to diminish the importance of the dispute, Economy Ministry sources insist that lifting the freeze would send investors stampeding for dollars, which would in turn send prices spiraling. Meanwhile, the central bank has continued to press its case for returning funds to depositors, which would undoubtedly generate support for government.
In the ongoing debate about the freeze, banks point out that their assets, 50 percent of which are defaulted government paper, are now trading at 20 cents on the dollar. As a result, they say, they cannot afford to offer depositors refunds without some compensation from the government or a recapitalization of the sector. Nor do the banks want to acknowledge any role in the decision to convert dollar bank holdings to pesos, which paves the way for the debts of their largest clients to be essentially canceled with the sharply devalued currency. More important, the government does not want to pay the political price of taking what many judge to be necessary steps, including a forced exchange of government paper for deposits and an involuntary restructuring of loans.
“The government changed all the rules of the game, and now depositors have no faith in the system; Argentineans don’t trust anything now,” says Miguel Kiguel, chairman of Banco Hipotecario and a former government official. Polling firm Catterberg y Asociados reportedthat 48 percent of Argentineans say they will never again put their money in their country’s financial system.
Although the erosion of trust poses a long-term threat, a more immediate concern is the country’s negotiations with the IMF. Even though the Fund agreed to postpone a scheduled payment by Buenos Aires on the $2.8 billion Supplemental Reserve Facility due in September, Argentina must pay off multilateral debts totaling $9.7 billion in the next seven months, an amount roughly equal to its total foreign reserves. Experts believe that until there is a rescheduling of the country’s $33 billion in multilateral debt, which accounts for 30 percent of total foreign debt and requires $18 billion in payments between now and the end of 2003, negotiations with private creditors cannot get off the ground. Argentineans can reasonably hope for IMF flexibility, but the prospect of a default on the multilateral debt, while remote, is not beyond the realm of possibility. Says economist Lacoste, “Argentina demonstrated good will, repaying almost $900 million to the Fund alone this year, and it would be madness to continue payments that would leave a new government without reserves.”
When talks with creditors do begin -- and Daniel Marx, former secretary for international finance, warns that that will not be anytime soon -- they will be extremely contentious. “First and foremost, it has to be recognized that almost all debt holders are Argentineans and, second, that there will be many more holdouts, raising the risks that the process will be more prolonged and costly,” he says. According to his calculations, the total public debt, which stood at $144 billion at the end of 2001, will have increased to approximately $166 billion by the time negotiations begin.
Economy Minister Lavagna continues to believe that talks will be initiated on his watch, probably before the end of November. “Our idea, and we have communicated this to foreign investors, is that immediately after concluding negotiations with the International Monetary Fund, we will begin negotiations with private holders of Argentina’s sovereign bonds, and, of course, this will be done on an absolutely nondiscriminatory basis.” Lenders, he says, accept the necessity of this approach: “They’re realistic.”
Representing interests far removed from the community of lenders is a group called Ahorristas Bancarios Argentinos Estafados, or Swindled Argentinean Savers. The Ahorristas are part of the new Argentina. Throughout the country organizations have cropped up to deal with the fallout from the economic crisis. As president of the Fundación Equidad, a nonprofit organization, María Eugenia Estenssoro travels all over Argentina distributing computers to poor schools and local social groups. “People can’t live comfortably side by side with thousands living off garbage,” says Estenssoro. “I see a citizenry looking for solutions in democracy, with tolerance and compassion.”
Promising new approaches to old problems, Elisa Carrió proclaims herself and her party the “antiestablishment.” “The old codes have destroyed the country,” she says. “If we don’t change them, there is no way out.”
Whether Carrió can deliver on her promise remains to be seen. Clearly, though, most Argentineans would like someone to try.
