Argentina: The Dark Horse Who's About to Be President

Will Kirchner return Argentina to its free-spending ways?

The long wait is over. After 17 months of a caretaker government, Argentina will celebrate its Independence Day on May 25 with the inauguration of a new President. The country's top job will go to Néstor C. Kirchner, who was outpolling fellow Peronist Carlos Menem by 2 to 1 when the former President dropped out of the race on May 14 -- just four days before a runoff election.

Next to Menem, who ruled Argentina for the better part of the 1990s, Kirchner is a cipher. But that doesn't seem to trouble the large portion of the electorate that blames the flamboyant Menem for the excesses that led to the current crisis. "Kirchner is basically an unknown," says Mariano Caillet-Bois, who manages $100 million in Latin American assets at Copernico Capital Partners in Buenos Aires.

What little is known about the 53-year-old lawyer is not altogether encouraging. Kirchner's track record as three-term governor of Santa Cruz, a province in Patagonia half the size of France but with a population of just under 200,000, is respectable if not inspiring. Oil-rich Santa Cruz is one of the few provinces with a balanced budget. It is also one of the last bastions of the paternalistic welfare state many Argentines still yearn for: More than two-thirds of Santa Cruz's workforce is employed by the government.

On the campaign trail, Kirchner positioned himself as a fiscal disciplinarian and reformer. Yet several of his proposals hark back to Argentina's free-spending past. To relieve unemployment, now running at 21.5%, Kirchner wants to create a new state oil company (the old oil monopoly was privatized in 1993) and embark on a massive public-works program. He also wants heavier regulation of Argentina's largely foreign-owned utilities. And in contrast to Menem, who would have tried to renew Buenos Aires' close ties with Washington, Kirchner is more interested in rebuilding the battered South American common market known as Mercosur.

On economic matters, Kirchner will be getting a lot of advice from a man Argentines have grown to trust: Economy Minister Roberto Lavagna. Since being handed the reins of a moribund economy 13 months ago, Lavagna has presided over a surprisingly speedy recovery. With exports rebounding and long-idle local industry experiencing a renaissance thanks to a more favorable exchange rate, Argentina's economy is on course to grow 4% this year, after contracting 10.9% in 2002. Monthly inflation was just 0.1% in April, down from 10.4% a year ago, while the peso has stabilized at some 2.80 to the dollar.

Indeed, that a backwater politician such as Kirchner rose from a crowded field of presidential hopefuls a few months ago to the threshold of the Casa Rosada, Argentina's presidential palace, is thanks in large part to his decision to keep Lavagna, 61, as Economy Minister. Political analysts expect Lavagna to play the role of virtual prime minister. A former diplomat, Lavagna deftly tamed Duhalde's populist impulses. He also has proved himself a hard-nosed negotiator in his dealings with the International Monetary Fund.

Lavagna's political skills will be tested in the next few months as the new administration begins to tackle a heap of unfinished business. A temporary accord with the IMF expires on Aug. 31, after which Argentina will have to find a way to roll over some $3.9 billion in debt owed to the fund before yearend. And while the country has been meeting its quarterly fiscal targets, the IMF will be loath to ink a new deal until the government presents a credible program to rebuild an insolvent banking system and kicks off debt-restructuring negotiations with holders of $95 billion in defaulted Argentine bonds. "Lavagna's going to be hit hard and often from abroad," says Abel Viglione, senior economist at Fundación de Investigaciones Económicas Latinoamericanas, a Buenos Aires think tank.

The posturing has begun. In early May, Lavagna indicated that "substantive" talks with bondholders would have to wait until after congressional elections in November. "That sounds awfully late after a long time of no progress," says George Estes, director of the Argentine Bondholder Committee, which represents more than 58 institutions holding more than $5 billion in Argentine debt. By then, at least, the world will have had a chance to take the measure of the man who will rule Argentina for the next four years.

By Joshua Goodman in Buenos Aires

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