Rio Gallegos, Argentina, May 15 (Bloomberg) -- Nestor Kirchner, who yesterday learned that he will be Argentina's next president, says his bankrupt country should spend its way out of a four-year recession.

``We're going to have a lot more public works projects to inaugurate,'' Kirchner said at the May 10 opening of 23 kilometers (14 miles) of newly paved road in Santa Cruz, the southern Argentine province he has governed since 1991.

Former President Carlos Menem's withdrawal yesterday from this weekend's election runoff means Kirchner, 53, will have four years to fulfill promises to create jobs and revive the economy. Kirchner says he will do that by boosting spending for projects such as building 3 million homes. As governor, he used oil royalties and federal funds to construct highways, hospitals and schools, creating 43,000 jobs and keeping Santa Cruz's unemployment rate at 3 percent, compared with 18 percent nationwide.

To increase outlays in a country that ran a budget deficit last year and says it has no funds to pay holders of $95 billion of defaulted debt would be a mistake, said Jonathan Binder, who helps manage $725 million in emerging-market debt and sold his Argentine holdings before the government stopped bond payments in late 2001.

`Deeply Concerning'

``If Kirchner uses public funds to spend his way to economic growth it would be deeply concerning,'' he said. ``The country has no access to local or international capital markets, so it would have to borrow more or print money to fund it. Sovereign prices would decline and bondholders would be forced to take'' an even greater loss on their investment.

Kirchner said at an April 24 rally that he's not prepared to make any payments on the foreign debt should that mean more suffering for the nation's poor. Argentina's 7 percent bond that matures in 2008 fell 0.25 cent on the dollar to an offer price of 30. That's still up from 20 cents in early March. Central bank President Alfonso Prat-Gay said on May 1 that a nascent economic recovery would increase Argentina's capacity to pay creditors.

The currency closed down 1.2 percent to 2.82 per dollar, the biggest one-day drop since May 6. Kirchner has said he would keep the currency weak to help domestic industry compete with foreign rivals. The benchmark stock index fell 0.6 percent, led by companies involved in the construction industry.

Cuts Needed

The government probably needs to cut, not increase, spending to ensure it has funds to pay bondholders and to start regaining access to capital markets, said Michael Discher-Remmlinger, who helps manage about 2 billion euros ($2.3 billion) worth of emerging-market debt at Deutscher Investment Trust in Frankfurt.

If Kirchner ``pursues populist economics and tries to ignore the need to restore confidence in the financial markets that will not succeed,'' said Bernard Aronson, managing partner of Acon Investments, which has about $450 million in Latin-American assets under management. Aronson served as an assistant secretary of state for Latin America under former President George H.W. Bush.

Menem, who like Kirchner is a member of the ruling Peronist party, pulled out of the two-man race after polls showed him trailing by more than 40 percentage points.

Kirchner, a father of two who is married to Peronist Senator Cristina Fernandez, says he wants to build 3 million homes in four years as part of his plan to restore growth to the $120 billion economy, which last year contracted 11 percent. He predicts the housing program will create 5 million jobs.

Political Life

Kirchner's political activities began when, as a student at Universidad Nacional de La Plata in Buenos Aires province, he joined the Peronist party. After returning to Santa Cruz he worked as a civil lawyer and ran the local government pension agency. In 1987, he was elected mayor of Rio Gallegos, the provincial capital, and became governor in 1991. He was re-elected in 1995 and 1999.

Roberto Giubetich, an oil engineer and leader of the opposition Radical Party bloc in the Santa Cruz legislature, gives Kirchner little credit for creating jobs in a province that benefits from producing one-fifth of Argentina's oil and gas and is home to just 0.6 percent of its 36 million population. The government employs 40 percent of the province's 85,000 workers.

Royalties from oil sales -- which contribute about half of the province's 900 million peso ($325 million) annual revenue --enabled Kirchner to spend an average 3,936 pesos a year on each inhabitant, said Alejandro Suarez, an economist who specializes in provincial finances. That's four times the national average and second only to the southernmost province of Tierra del Fuego, said Suarez.

Hospitals, Child-Care Centers

Santa Cruz has 14 hospitals and every town and village in the province has its own health and child-care center. Kirchner takes particular pride in the hospitals and will stroll the corridors in his leather loafers, dragging a finger along ledges to check for dust, said Eduardo Bustos Villar, a doctor and director of the provincial Social Affairs Ministry.

``When Nestor took control of the government he made it clear the priorities were going to be health and education,'' said Kirchner's elder sister, Alicia, who is the province's minister of social affairs.

Among Kirchner's spending projects was the $20 million reconstruction of an airport in the tourist town of El Calafate in 1995, just three years after completion of another that proved too small. It did nothing for the province's businesses, said opposition leader Giubetich.

``It's not that the government did too little to help foster private growth,'' he said. ``They didn't do anything.''

Barren Plains

Santa Cruz, whose barren plains, ice fields, glaciers and mountains cover an area the size of the British Isles, has no industry to process the 10,000 tons of wool it produces each year. The province's fishermen send their catch to other parts of the country for processing. Electricity-generating capacity is insufficient to power factories, said Mario Blaser, president of the chamber of commerce in Rio Gallegos.

``Kirchner's government lacked the commercial vision to develop industries,'' said Blaser.

Once in office, Kirchner must move quickly to create jobs and help Argentina's 20 million poor if he is to win the support of a Congress dominated by a divided Peronist party, said Suarez.

``The first three months are crucial to create credibility and he's going to do that by creating jobs,'' he said.

Kirchner, who stopped smoking eight years ago and spends 50 minutes a day on a treadmill, has the determination and passion to push through plans, said his vice governor, Hector Icazuriaga.

``He's a man who is going to make strong decisions right off the bat,'' said Icazuriaga.

An avid soccer fan who prefers fish and pasta to the country's traditional meat dishes, Kirchner also has shown he is prepared to break rules to achieve his aims.

Once, during a high school basketball game against a team from Punta Arenas, Chile, Kirchner was watching the final minutes from the bench with the score tied 60-60. As an opposing player ran down the court, threatening to score the winning basket, ``I jumped out and gave him a hug,'' Kirchner says with a wink. A fight broke out and the game was never finished.

``We unmasked a personality trait that day,'' said Kirchner's former coach, Emilio Garcia Pacheco. ``Nestor gets worked up pretty fast and tends to take immediate action.''

Last Updated: May 15, 2003 16:49 EDT