"There Are No Magic Solutions"

Can Economy Minister Jorge Remes Lenicov fix this mess?

If there's one thing Argentine Economy Minister Jorge Remes Lenicov is known for, it's his ability to keep cool under pressure. Legend has it that when a Spanish government official rang him at home in early January to protest Argentina's impending peso devaluation, Remes instructed his wife to refuse the call. A few days later, at a press conference, Remes assured Argentines that as the man charged with the daunting task of rebuilding a shattered economy, he knew when and when not to pick up the phone.

You won't catch Remes screening calls from the International Monetary Fund, though. Since being tapped by President Eduardo Duhalde 100 days ago for the Economy Ministry post, the 54-year-old economics professor has been anxiously awaiting an IMF rescue package worth as much as $9 billion, along with the release of $6.8 billion pledged earlier. Unlike his predecessor, Domingo Cavallo, the architect of Argentina's once-lauded currency board, Remes is not selling a miracle cure for the country's ills. "There are no magic solutions," he said during an Apr. 15 interview from his elegant office overlooking a heavily barricaded Plaza de Mayo. "People's confidence will return only when Argentina delivers on its promises--and that takes time. Reaching an agreement with the IMF is the first step."

Remes' straight-talking realism is refreshing after a year of empty promises from Argentina's policymakers. In fact, the new government has made an IMF deal the cornerstone of its entire economic program. Authorities are hoping that the fund's imprimatur will kick off a virtuous cycle that will repair Argentina's tattered credibility, help stabilize the now free-floating peso, and lower interest rates, presently hovering at a punishing 60%, thereby creating the conditions for an economic recovery. Remes says an accord could be in place by mid-May, though he admitted that several sensitive issues have yet to be worked out.

One of the sticking points is the IMF's demand that Argentina slim down its bloated bureaucracy--one of the root causes of its recurrent fiscal deficits. Remes is resisting the move, arguing that mass layoffs could spark a fresh round of street violence. "If the IMF or anyone else asks us to fire 450,000 people overnight after four years of recession and amid record unemployment, I'd tell them they're crazy," says Remes. Indeed, he faces an uphill struggle in imposing fiscal austerity on Argentina's wayward provinces. The IMF wants governors to shrink their public deficits to 60% of last year's level.

Remes' own track record in this area is sterling. Although he was a member of the Peronist Party's militant left wing during his college years in the 1970s, Remes ran a tight ship when he served as economy minister of Buenos Aires province from 1989 to 1997. He also was the force behind Duhalde's decision to tone down the populist rhetoric that characterized his early days in office. And he won praise from Wall Street and Washington for taking the painful step of breaking the peso's 11-year-old peg to the dollar. "He may not be the most innovative policymaker, but you would be hard-pressed to find someone as principled and with as much knowledge of the political process," says Abel Viglione, senior economist at the Foundation for Latin American Economic Research, a Buenos Aires think tank.

Yet Wall Street, which fell under the spell of the smooth-talking Cavallo, is loath to place its trust in Remes, who is relatively unknown abroad and has only a rudimentary command of English. Critics charge that Remes and his boss, Duhalde, have been improvising, announcing measures one day only to repeal them the next, sowing uncertainty among the public and foreign investors. Witness the administration's recent decision to impose a 20% duty on agricultural exports--a move that runs counter to its stated goal of promoting an export-led economic recovery. "The government should give a clear signal of where the economy is headed instead of announcing measures nobody knows how long will last," says Vladimir Werning, chief economist for J.P. Morgan Chase & Co. in Buenos Aires.

One question concerns just how much Remes or any policymaker can do. "There's a sense that Argentina's problems exceed the limits of any single man or government," says political pollster Ricardo Rouvier. Economists predict Argentina's gross domestic product will shrink by as much as 15% this year, while inflation is set to top 40%. And if a recent wave of corporate defaults is any sign, some of the foreign investors that poured $90 billion into Argentina over the last decade could be heading for the exit. Spanish power company Endesa has warned that service in its Buenos Aires concession area could suffer unless the government quickly authorizes a rate increase--a move that would trigger a political uproar. If Argentina ever needed a steady hand on the economy, it's now.

By Joshua Goodman in Buenos Aires

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