Upcoming Argentine Presidential Election

http://www.coha.org

March 31, 2003

For Immediate Release

Memorandum to the Press

03.12

Upcoming Argentine Presidential Election

Fractured Parties, Chaotic Economics and Bleak Historical Legacy, and a Societal Clock That Doesn't Keep Time

- Following the formal restoration of democracy, and even with the slow rebuilding of its shattered economy now being witnessed, Argentina has yet to regain its status as a respected regional power.

- Menem's neo-liberal economic reforms, successful at taming hyperinflation in the early 1990's, directly contributed to the demise of the Argentine financial system in late 2001. His participation in the race, rather than serving time in some Argentine penal institution, reflects on the scandalous nature of that country's judiciary.

-. Corruption-prone officials and divisive personal feuds have ripped the fabric of Argentina's traditional political parties and prevented the creation of a much-needed consensus for fundamental reforms.

- Reeling from profound economic dislocations and political disillusionment, and while elected representatives are enjoying the fruits of office, disaffected Argentines are now crying out, Que se Vayan todos! (Kick them all out!).

On April 27, 2003 Argentines will go to the polls to elect their first president since Fernando de La Rua obtained a democratic mandate in 1999. Much has changed since the hapless de la Rua occupied the Casa Rosada. In the early phases of this period, the country's presidency seemed to change daily, with five individuals holding the presidency during a two-week period. Meanwhile, the country continued its steep decline into political and economic self-destruction. It was not until Eduardo Duhalde emerged as a semi-viable interim head of state that some semblance of normalcy was restored.

However, irreparable harm already had occurred to the nation. Argentina had defaulted on its debts to private lenders, was forced to devalue its peso, and negotiations with multilateral lending agencies for a restructuring package were deadlocked for many months. The repercussions of a long-standing economic rout are prevalent today: unemployment still stands close to 20%, the much-maligned peso commands only 33 cents per unit (compared to $1 over a year ago), almost 60 percent of the population dwell in poverty (with a family income of less than $250 monthly), with the 2002 GDP contraction of 10.9 percent standing as Argentina's worst single-year-performance in a century.

Equally alarming is the shabby nature of the country's politics, its self-esteem, its low level of optimism, its lack of international credibility, and the fact that the nation has never fully confronted its disgraceful modern history. From 1976-1983, 20,000 to 30,000 people died as a result of the Argentine government's dirty war against its own people. In that holocaust, thousands of would-be natural leaders were barbarically murdered, while the moral leper, Menem, was preparing himself to assume office.

What's more, political fragmentation further exacerbates the nation's institutional paralysis. The Peronist Party, long the mainstay of Argentina's body politic, could not come to an agreement on an official presidential candidate. Riven by personal and factional rivalries, Peronism will field a total of four candidates running for office. Likewise, the Union Civic Radicals, the other main component of the country's basically two-party system, has witnessed two of its members break ranks and campaign on independent platforms, thereby diluting the potency of the official party candidate. In all, 15 candidates will vie for the Presidency in the upcoming election.

While the proliferation of candidates technically can be accommodated in a democratic system via run-off elections, it cannot remedy the potential impotence of the eventual victor. Bereft of party support, not to mention the prospect of political warfare of competing parties, the next president is unlikely to be able to wield the political capital requisite to address the wealth of maladies afflicting today's Argentina.

Already affected by the misguided economic policies, rampant corruption and a rapidly deteriorating standard of living, it is not surprising that Argentine society is apathetic at best about the upcoming ballot. In this atmosphere of diminished expectations, many voter surveys indicate a higher percentage of Argentines plan to abstain or intentionally spoil their ballot than any single candidate will be able to muster. The fissures already evident in the country's leading political organizations and a corresponding dispersion of power through the country's political system, adds even more drops of poison to an already saturated well.

What Revival?

What was lauded as a major achievement for Argentine society, the restoration of democratic rule in 1983, has been blighted by the disastrous course of economic development implemented since then. Part of the problem is due to a systematic failure in the governmental process, characterized by corruption from the top down, the leftovers of a neo-nazi moral code among much of the middle-level bureaucracy and judges who owe their appointments to either the military junta or such egregiously self-serving presidents like Menem, a venal judiciary and a lack of nerve on the part of the Argentine public and leadership to openly confront the country's heinous past in which tens of thousands of victims were murdered or "disappeared" from 1976 to 1983. Equally disturbing is the depressing dearth of an inspiring, authentically democratic and ethical future leadership in whom the population could vouchsafe its trust.

Menem's Dismal Cloud Over Argentina's Future

The country's economic collapse traces its roots to the governance of Carlos Menem, whose manipulated measures stimulated a temporary economic boom during the 1990's, while ultimately ushering in a profound recession. Charged with the task of subduing the scourge of hyperinflation, he opted for several orthodox economic prescriptions. Among these were the pegging of the value of the Argentine peso to the U.S. dollar, aggressively privatizing state industries, liberalizing foreign trade and facilitating nearly unregulated foreign investment flows. Along with staunching hyperinflation, Menem hoped these programs would ensure sustained economic prosperity. Initially, the scheme met with considerable success; inflation was reduced from 4900 percent in 1989 to about 1 percent in 1997 and annual GDP growth in the mid-nineties averaged about 5%.

What is often overlooked, however, is the darker side of Menem's policies. Crony-rigged privatization schemes involving huge covert payoffs sparked massive layoffs; the dollarization of the economy escalated the cost of living, much to the detriment of the average Argentine. All told, close to half of the middle class fell through the cracks into an inferior socio-economic status due to Menem's policies. Amazingly enough, after all the scandals, charges of master and minor pilfery and other garish actions which were lodged against him, (including his involvement in several major scandals, including illicit arms sales and bribes surrounding the Buenos Aires bombings of Jewish facilities in the 1990s), Menem remains a viable candidate in the current race.

Despite efforts to maintain the country's flagging economic boom, Argentina began to exhibit symptoms of recession well before Carlos Menem reluctantly vacated the Casa Rosada. Part of his domestic political strength came from the high esteem his neo-liberal poilicies produced in Washington. During his presidency, he developed a garish degree of intimacy with the Clinton administration, which included a state dinner at a White House transformed for the night into a tango parlor, with Robert Duvall presiding.

Menem's successor, Fernando de la Rua, assumed his predecessor's troubled legacy, which included an exorbitant external debt and dogmatic adherence to a currency board that stifled export opportunities as the dollar appreciated and neighboring Brazil's real plummeted. A deepening recession, policy paralysis, and an unsustainable repayment schedule prompted Argentina to default on its private foreign debt and eventually to devalue the peso, which precipitated a commensurately dire political crisis. As a result, de la Rua, who was forced to resign as a consequence of the country's economic breakdown. This triggered a political parade, as each pretender failed to successfully curry the favor of an envenomed Argentine public, which was already taking to the streets in bloody confrontation with the security forces. High unemployment rates, rampant poverty and limited access to bank resources left half of the population without the resources to buy even basic foodstuffs.

The crisis continued unabated until Eduardo Duhalde, a Peronist leader, was elected president by the Congress on January 1, 2002. Duhalde was slated to stay in power until the end of October 2002, when De La Rua's term would have finished, but fresh elections were instead postponed for the third time, to April 27, 2003, in the hopes of further calming a volatile political climate.

Houses Divided

Argentina's descent into an economic purgatory has deepened already calamitous fissures within the ailing Peronist Party. The basis of this ailment stems from a deadly mixture of political rivalry and personal odium between two of the organization's heavyweights, Menem and Duhalde. The two were nominal allies under the umbrella of Juan Domingo and Eva Peron's Peronist Party, but the rift widened after Menem amended the constitution to enable him to stay in power for a second term and further expanded when he flirted with pursuing a third. The upcoming election showcases the divisions among the Peronists and the proxy war relentlessly being waged between Menem and Duhalde, with the former, along with three other Peronists, vying for the presidency.

As the de jure leader of the party, Duhalde tapped left-of-center Santa Cruz governor Néstor Kirchner to be his candidate. The interim president also arranged to have last January's party primary scrapped, depriving Menem of the opportunity to seek the official endorsement of the Peronists, now ensuring that a quartet of party leaders eventually would run for the presidency.

Deriving his strength from Argentina's middle class, Duhalde's man, Néstor Kirchner, has crisscrossed the country in an effort to bolster his support. Meeting with workers and businessmen hailing from various provinces, he closely listens to the complaints of fellow Argentines and hopes to fulfill their demands for higher wages, protection for domestic industries and eased access to private and commercial loans. He also exhibits statist tendencies, including championing the national oil company and opposing privatization of public utilities.

Menem the Mendacious

The second Peronist candidate is a legendary figure in Argentine politics. Carlos Menem, known for his fondness for fast cars and beautiful women, (he drove a Ferrari as president and has, for the past two years, been married to a former Miss Universe half his age). For five months in 2001, he was under house arrest on suspicions of arms-trafficking in an under-the-table deal for personal gains. He also was accused of conspiring to cover up terrorist attacks against Buenos Aires-based Jewish facilities in exchange for a $10 million payoff during his corruption-wracked presidency.

By contrasting the dire economic situation currently gripping the country to the relatively deceptive opulent times experienced under his administration, and by touting his charisma, Menem hopes to siphon votes away from the relatively drab Kirchner. However, by playing the economic card, the former president runs the risk of undermining his own candidacy, for the latest collapse of Argentina can be directly traced to his ebullient neo-liberal policies.

Adolfo Rodriguez Saá is the third noteworthy Peronist. After his abbreviated one-week presidency, he is looking forward to a more permanent tenure. His 125-point election manifesto includes investment-conducive tax reductions and pledges to raise the minimum wage and retirement pensions.

The divisions and factionalism embedded within Peronism are replicated in the Radical Civic Union Party (UCR), albeit with one important distinction. Rather than tagging themselves with variations of the party label, challengers to the party's mainstream consensus have formulated completely independent platforms, leading their supporters out of the party in the process. Large-scale defections have sapped the potency of Leopoldo Moreau, the official UCR candidate. His plight is compounded by the party's credibility, which has remained tarnished ever since Fernando de la Rua's ignominious departure; indeed, Moreau scarcely registers in the polls.

Another dissident Radical is Elisa Carrio, who represents the strongest alternative to the Peronistas. A member of the Republic of Equals Party, which incorporates former Peronists, socialists and ex-Union Civic Radicals, Carrio stands as a welcomed relief for those who are indifferent towards the candidates being fielded by the traditional parties, which have offered few solutions to Argentina's pervasive economic problems. Her platform emphasizes extensive political reforms, uprooting the abundant Menem-era excesses and rejecting heartless IMF prescriptions. With the Peronist party divided, Carrio's independent orientation theoretically bodes well with disillusioned voters, but in practice, she has no more noticeable support than the other candidates.

Joining Ms. Carrio as an independent presidential candidate, is Ricardo Lopez Murphy, who also split from the UCR. A former economy minister, Murphy heads the newly-created Federal Re-creation Movement, a right-of-center entity that stresses the revitalization of "rules and institutions." Given the abundant crop of presidential candidates, the electorate has a vast array of candidates to choose from, but the downside is that none of them have attracted overwhelming enthusiasm.

Presidential Elections

According to the constitution, a candidate needs 45 percent of the votes, or at least a 10 percent margin over their closest rival to become head of state. Recent polls indicate that the disenchanted and dispirited electorate has yet to significantly focus on any one of the candidates. None of the presidential contenders have been able to muster more than 20% of the votes, as of now. According to a March 23 poll conducted by the consulting firm Ipsos Mora y Araujo, Kirchner remains the frontrunner, claiming 21.2 percent of the votes, followed by Adolfo Rodriguez Sáa with 15.8 percent, and Carlos Menem running third with 15 percent. In fourth place is Elisa Carrio with 12.5 percent, and Ricardo Lopez trailing with a tally with 11.6 percent. Given the minor margins separating all of the candidates, a run-off election slated for May 18 will be necessary, with Kirchner expected to triumph under almost any scenario. What also seems probable, according to this poll, is that even if Menem survives into the second round, he will lose that vote due to his polarizing personality, which has engendered an unbridgeable division between his followers and everyone else.

Sclerotic Decline

Other polls reveal that as many as 20 percent of Argentine voters will deliberately spoil the ballot paper as a gesture of disgust. Fed up with eroding living standards and frustrated the chicanery of their purported representatives, Argentines of all political orientations have lost faith in the institutions underpinning a democratic society. Except for gaining access to their bank accounts, dire economic conditions are unlikely to be alleviated in the foreseeable future. The deterioration of the Peronists and Radicals and the attendant dispersion of their authority has been so pervasive that even the semblance of a stable two-party system is currently beyond the present capacity of Argentine politics to engineer.

The deterioration of Argentina's political system is indicative of the country's free-fall from the upper echelon of Latin America's most prestigious nations. Rosendo Fraga, an Argentine political expert, likens the upcoming presidential election to those held recently in Ecuador and Bolivia, instead of the contest held by hemispheric titan, Brazil.

The Depths of Despair

In what amounts to an annus horribilus, Argentina's 2002 macroeconomic figures testify to the extent of the country's decline: the economy ministry reckons 58.5 percent of the population is impoverished and that its GDP contracted by 10.9%. External financing is all but unavailable, preventing Argentina from exploiting a competitive currency and under-utilized productive capacity to jumpstart the economy.

Central to redeeming the soundness of the country's credit is the need to successfully restructure payments of the $100 billion in debt it owes to private lenders. In this vein, Argentina has acquired the services of the Paris-based investment bank Lazard Freres to serve as its advisor, in what could be some of the most contentious debt negotiations ever to confront the nation.

Of even more immediate concern is the fate of tens of thousand of bank deposits and loans. One of Mr. Duhalde's legacies was the forced conversion of dollarized bank accounts into pesos. Economy Minister Roberto Lavagna announced that the controls on bank accounts was being lifted and account holders would have access to their funds, except not all of them, and not immediately. Lavagna has offered to the banks $1 million to each of the local banks to compensate them for losses, which were accrued during the dollar conversion to pesos process. The banks complain that this move does little to ensure that another run on them will not occur, leaving these financial institutions feeling somewhat exposed. This is especially the case in light of favorable rulings as a result of lawsuits brought by account holders. On March 5th, in the first of many such cases, the Argentine Supreme Court ruled in favor of 180,000 depositors who were challenging the decree. The claimants are due upwards of $10 billion; much of the bill will have to be footed by taxpayers, another blow to the government's credibility and its coffers.

Equally pressing is the need to secure a comprehensive, medium-term economic accord with the IMF. Last January, Duhalde, the outgoing interim president, won a respite by securing a $6.8 billion package of public loan rollovers after his officials threatened to default on payments to multilateral lenders. However, the interim deal expires in August, which will only add to the woes already facing his successor.

Bleak Outlook

In what was supposed to be the first step in restoring Argentina's respectability after many years of authoritarianism and upheaval, the reintroduction of democracy has also proved elusive. Pervasive corruption, personal aggrandizement, and arrogance as the mark of politicians have devastated the economy and impoverished millions of Argentines. The accompanying fragmentation of party discipline has encouraged powerful individuals to carve out personal fiefdoms that they jealously guard while the concept of consensus politics withers. It is no wonder the people of Argentina are so cynical about the mainly lackluster array of presidential candidates being offered them and genuinely apprehensive about the future.

This analysis was prepared by Grant M. Nulle and Juliana Guaqueta, Research Associates at the Council on Hemispheric Affairs. Issued March 31, 2003.

The Council on Hemispheric Affairs, founded in 1975, is an independent, non-profit, non-partisan, tax-exempt research and information organization. It has been described on the Senate floor as being "one of the nation's most respected bodies of scholars and policy makers." For more information, please see our web page at www.coha.org; or contact our Washington offices by phone (202) 216-9261, fax (202) 223-6035, or email coha@coha.org.

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