A Talk With Argentina's Finance Minister
Former central banker Roque B. Fernandez, 49, who took over as Economy Minister last July, is orchestrating Argentina's borrowing splurge. His low-key approach contrasts with that of his predecessor, Domingo Cavallo, who was forced out after five years by rising opposition stirred by his painful economic reforms and combative style. Fernandez, a University of Chicago PhD, is a golf enthusiast, a ham radio buff, and a tinkerer with autos and computers. In interviews on Jan. 9 and Jan. 14, he discussed Argentina's prospects with Louisa Shepard and Ian Katz, BUSINESS WEEK's correspondents in Buenos Aires and Sao Paulo, respectively.
Q: Will Argentina's recovery gain momentum this year?
A: Growth of [gross domestic product] will be about 5%. We have a lot of private investment. There was an important increase in agricultural acreage, so we are going to have an all-time record crop. There are industrial operations, such as a $500 million fertilizer plant being built by [oil company] YPF and [industrial conglomerate] Perez Companc.
Q: What about foreign investment?
A: Mining, which was totally undeveloped in Argentina, is becoming a very important economic sector. We have an Australian and Canadian venture [led by MIM Holdings] working very actively. I think mining will become a major exporter.
Q: Mexico's peso crisis triggered a credit crunch in Argentina. Is it over?
A: We have more bank deposits now than before the "tequila effect." During 1996, we first observed a recovery of mortgage lending, then of lending to construction companies and home buyers. Now we are looking at the extension of credit for durable goods such as cars. [Auto sales] were very high in the last quarter of '96.
Q: Courts have nullified measures to increase labor mobility, which would reduce the 17% jobless rate. Now what?
A: Most of the judges of labor contracts have been politically appointed to protect the interests of labor unions. We will defeat the opposition by the labor courts in the Supreme Court.
Q: What economic interests of unions are targeted by the labor reforms?
A: When you buy a beer in Argentina, 1% of the price goes to the unions. There are cases where the union will charge 3% of the nominal wage to provide health services, then allow the company to hire someone else to provide them. They are collecting a toll. That is why they oppose health-insurance reform, which will allow workers to choose their health services. In the first stage, union health services will compete among themselves. After two years, the private sector will come in.
Q: Domingo Cavallo has continued to denounce corruption in state agencies. What should be done to clean it up?
A: Eliminating the participation of the state in private-sector activities is perhaps the most important. In the his-tory of Argentina, there has been no more impressive advance against corruption than the privatization program of the past few years. Now we have to resolve the problem in customs, for example. We are going to introduce pre-shipment control by international companies. The merchandise will be controlled at the point of origin. It won't go through the clearance process in customs, where we had a lot of corruption.
Q: What will you achieve by the proposed tax-sharing with the provinces?
A: We have to reach an agreement on fiscal responsibility at the local government level. The national government is backing the provincial debt. In the U.S., the city of New York could declare bankruptcy. That could not happen in Argentina. The provinces should have financial independence in terms of market recognition that they are separate entities. The market will introduce discipline in the accounts of the provinces if we can introduce fiscal differentiation between the federal and provincial governments.
Q: Your predecessor was noted for his conflicts with other government officials. How would you describe your style?
A: I don't want to talk about Domingo. I am not fighting anyone. I disagree with people, but they are not my enemies. I don't insult them. I was president of the Central Bank, which is not an easy job, for six years. I had to sell provincial banks. I had to liquidate private banks. [Coping with] the crisis was not easy. I think you can do these things without taking it too personally.