New president's challenges

By Peter Hakim
Miami Herald, December 7, 2007

Cristina Fernández de Kirchner, who will become president of Argentina on Monday, owes her landslide electoral victory to the extraordinary political and economic success that her husband -- outgoing President Néstor Kirchner -- enjoyed over the past four years. And most voters want her to follow in Kirchner's footsteps. But, to sustain his successful trajectory, Fer- nández, ironically, will have to change course dramatically, reversing some of her spouse's most popular and effective policies.

Kirchner has a lot to boast about. His record of accomplishment is impressive by almost any standard. He was elected at a time of political turmoil with less than 22 percent of the vote. His main opponent, the deeply discredited former President Carlos Ménem, actually got more votes but withdrew from the second round that he was sure to lose. Subsequently, Kirchner managed to raise his approval rating to a high of 80 percent; today it hovers near 55 percent -- a high number for any Latin American president. No one can challenge him politically.

Moreover, when he took office in May 2003, Argentina's economy was broken. Confidence in the country's future was still near rock bottom -- at home and internationally. Argentines were migrating abroad in record numbers. Since then, Argentina has enjoyed Asian-style annual growth rates of nearly 9 percent. Unemployment has been slashed in two.

To be sure, Argentine growth has been mainly due to a robust global economy and its elevated demand for the country's bountiful agricultural products, helped by the government's decision to walk away from most of its debt. Argentina has not enjoyed any sudden surge in productivity or new investment.

Indeed, Fernández's first concern has to be the economy -- to address the systemic weaknesses that her predecessor left unattended and that are now emerging as threats to further growth. Sustaining a healthy economy in the coming period will require some sharp reversals in policy direction. Contrary to lower official figures, independent analysts agree that inflation, Latin America's traditional scourge, is now in double digits and accelerating in Argentina. As almost everywhere else, wage and price controls are ineffective and are producing shortages.

What is needed are some difficult decisions by the new president to raise currently negative real interest rates, cut government expenditures and allow a deeply under-valued peso to appreciate.

Similarly, to avert looming energy shortages, the price of gas and oil has to be raised, which the government has fiercely resisted to date. Steep price rises are necessary to attract new investment to the energy sector, which is simply unable to meet growing demand. Throughout the economy, a lot more has to be done to bring capital to Argentina. Stable, market-based rules are essential. And so are fair mechanisms for resolving disputes. It cannot all be left up to the arbitrariness of executive decision.

Argentina's aggressive attitude toward the multilateral financial institutions and creditor governments -- even toward its neighbors -- surely contributed to Kirchner's popular support at home. So did his refusal to negotiate seriously with Argentina's foreign creditors. But today, a more cooperative approach to foreign relations is needed to constructively resolve remaining debt problems, reestablish normal ties to the international institutions and boost the confidence of foreign investors.

Some policies can and should be left in place, particularly in the human rights area -- where the Kirchner government stood up to the military and ended its amnesty for past abuses. Still, political changes are essential for Fernández to govern effectively and assemble a consensus for the needed policy realignment. For four years, Kirchner was the government; he consulted with only a few close advisors.

He rarely, if ever, brought his full cabinet together. Congress largely became a rubber stamp. In the midst of crisis, Argentines wanted someone to take and exercise authority. The Fernández government has the task of rebuilding politics and political institutions.

It was disappointing that Fernández decided to keep so many of her husband's cabinet ministers -- which widely signalled policy continuity, not change. Only by avoiding the temptation to follow the course that made her husband popular and effective can Fernández hope to enjoy his success.