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Both candidates are billing it as a high-noon showdown between divergent economic models. But the only sure thing about Argentina's presidential runoff is that a Peronist will win. Unable to unite behind a single contender, Argentina's ruling Peronist Party fielded three candidates in the Apr. 27 elections.
Former President Carlos Menem, 72, won the most votes, 24%, but he failed to cross the 45% threshold required to avoid a rematch against Néstor Kirchner, an untested provincial governor from Patagonia and fellow Peronist. The two will now square off on May 18 in a second-round vote. Pollsters still rate it a tossup.
HOTTEST BOURSE. Whoever wins will face an uphill battle convincing investors that they have what it takes to keep Argentina's ailing economy on the mend. Since contracting 10.9% last year in the wake of a devaluation and debt default, gross domestic product grew by 5.8% in February on the back of a 16% jump in exports and a manufacturing resurgence. With imports rendered more expensive by a weaker peso, Argentine industries are experiencing renewed demand at home. And investors have bid up the local Merval stock index up nearly 36% in dollar terms so far this year, making it the world's best-performing bourse.
Still, Argentina's economy isn't in the clear yet. President Eduardo Duhalde's caretaker government has deferred the thorniest problems to the incoming administration. The next President will have to tackle an insolvent banking system, kick-start talks with holders of $95 billion in defaulted Argentine bonds, and renegotiate contracts of foreign-owned utilities. "It won't be a pleasant walk in the woods, whoever is elected," says Rafael de la Fuente, BNP-Paribas' chief economist for Latin America.
Wall Street believes that of the two remaining candidates, Menem is better suited to these tasks. In his 10 years in power (1989-99), the two-time President earned a reputation as a bold reformer by conquering hyperinflation, opening up the economy, selling off rusting state industries, and ushering one of the longest economic expansions in the country's history.
LEFTWARD HO? A gifted politician, Menem also proved adept at managing Argentina's powerful provincial governors, a process akin to herding cats. But along with stability came a long list of corruption charges and a yawning fiscal deficit. Indeed, a large proportion of Argentine voters believe that Menem sowed the seeds of the current crisis. Unemployment is running at near 18%, and 58% of the population live in poverty. That's a bruising fall from grace for a country that once boasted the largest middle-class of any Latin American nation.
In surveys, 60% of Argentina's voters say they wouldn't vote for Menem under any circumstances. To transcend such negatives, this veteran political operator will "need to move closer to the left-leaning wing of the party represented by Kirchner," says Vladimir Werning, chief economist for JP Morgan-Chase in Buenos Aires.
While Menem has stuck to a free-market message during the campaign, his rival's rhetoric is tinged by protectionism. Analysts expect from Kirchner a continuation of the not terribly effective but generally tolerable policies enacted by Duhalde's Economy Minister, Roberto Lavagna, who's expected to stay on if Kirchner wins. "Things won't move quickly, but they won't go off-track either," says de la Fuente.
"LITTLE ROOM." Making sure the economy doesn't run off the rails will be one of the tasks of the International Monetary Fund. A temporary accord to extend repayments on debt owed to the fund expires on Aug. 31. The incoming government, which assumes office at the end of May, will be under great pressure to clinch a new IMF deal. Without the fund's seal of approval, the process of renegotiating the massive debt won't move forward, while foreign companies will be loath to pump fresh capital into their Argentine operations.
"Between the demands of the IMF and those of an outraged public, there's little room to maneuver," says Christian Stracke, head of emerging-markets research at Credit Sights in New York. Investors, both local and foreign, may take some comfort in that.
By Joshua Goodman in Buenos Aires Edited by Cristina Lindblad
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