In Argentina, a Surgeon without a Scalpel

Argentina's new economic czar inherits stagnation and debt

After 32 months of virtually no growth, Argentina's economy is on life support. But now President Fernando de la Rua is confident he's found a star surgeon to pull the patient through. His name is Ricardo Lopez Murphy, a 49-year-old University of Chicago-trained economist who on Mar. 5 took on the thankless post of Economy Minister. Investors welcomed his appointment, cheering the Buenos Aires stock exchange to its largest single-day gain in nearly two years.

In this job, style as much as substance will determine whether Lopez Murphy succeeds where his predecessor, Jose Luis Machinea, failed. Analysts concur that Lopez Murphy will not be able to deviate much from the strict course of treatment prescribed by the International Monetary Fund as a condition for a $40 billion rescue package delivered in December. Yet the former Defense Minister boasts something Machinea sorely lacked: credibility. "He's a strong choice," says one IMF official.

Lopez Murphy has the face of a bulldog and a style to match. During the 1999 presidential campaign, he riled voters by proposing the government trim public-sector salaries by 10% to reduce its budget deficit. Although that comment cost him the top job at the Economy Ministry, the de la Rua administration later pushed through even larger pay cuts. "He's not afraid to make hard choices," says Martin Redrado, Chief Economist at Buenos Aires think tank Fundacion Capital.

Hopes are high that Lopez Murphy will move more aggressively to curb Argentina's yawning fiscal deficit. Analysts expect him to push for as much as $4 billion in new spending cuts in order to beat the $6.5 billion fiscal deficit target set by the IMF. In exchange, Lopez Murphy may be able to persuade the fund to sign off on modest reductions in corporate taxes, something Argentine business is loudly clamoring for.

But it's not just the IMF and Wall Street that Lopez Murphy must win over. Domestic consumption, the engine of the Argentine economy, has collapsed under the weight of 15% unemployment. Car sales plunged more than 42% in February compared with the same month last year. Lopez Murphy must convince Argentine consumers and businesses that better times are just around the corner to get them spending again.

CONSENSUS ANYONE? Yet if implementing painful reforms was difficult in the early days of the 15-month-old de la Rua administration, it's even harder now. Relations between the President's centrist Radical Party and its coalition partner, the left-leaning Frepaso, were already tense before the appointment of Argentina's answer to Milton Friedman. And with midterm elections due in October, the opposition Peronist party is not in the mood for compromise either. "Without a broad, political consensus, [Lopez Murphy] will fail just like Machinea did," says Christopher Ecclestone, managing director of, a local market-research firm.

Reinforcements could be on the way. De la Rua is weighing the possibility of offering the Central Bank presidency to ex-Economy Minister Domingo Cavallo, the highly esteemed architect of Argentina's currency board. The board pegs the peso to the U.S. dollar at a fixed 1-to-1 rate, and is credited with ridding Argentina of hyperinflation. Cavallo's return would quell the currency jitters that have resurfaced in the wake of Turkey's devaluation. "They're Argentina's dream team. If they can't do it, no one can," says Walter Molano, strategist for BCP Securities LLC in Connecticut. But the chief surgeon and his assistant had better hurry. The patient's pulse is fading fast.

By Joshua Goodman in Buenos Aires with Rich Miller in Washington

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