Argentina's Ever-Changing Fortunes

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Good Times, Bad Times

Kirchner has kept the good times rolling by keeping the peso undervalued, which boosts exports, and by slapping price controls on two-thirds of the market basket of goods used to calculate the consumer price index. Electricity rates have been frozen for more than two years. Last year, official inflation was 9.8% but some economists believe the figure is being manipulated: Recently, Kirchner fired the head of the government's statistics agency when official inflation calculations came out higher than he had hoped. Economists say prices eventually will have to be corrected, and that could cause an economic slowdown that would come as a rude shock to Argentines accustomed to China-style rates of growth.

Argentines have an uncanny way of muddling through difficult times, and relaxing and enjoying the good times. Perhaps it's because for the past 25 years they've survived a series of booms and busts, including a 1980s bout with hyperinflation. When officials pegged the Argentine peso to the U.S. dollar in 1991 at a rate of one to one, few believed the stability would last for a decade. But it did, and in the 1990s Argentina became the darling of international investors, at one point accounting for 25% of all emerging-market bond issues. But the government financed its deficit spending with dollar borrowing and by the end of the decade, the exchange rate was unsustainable.

Today, thanks to record exports, Argentina boasts a 3% fiscal surplus. Kirchner appeals to voters because he's down to earth and has delivered results, believes pollster Analía del Franco. "The bottom line is that today, there are more people doing well than people who are doing poorly."

That is evident in Puerto Madero, the formerly seedy docks section of Buenos Aires area that is now home to super-chic hotels and luxury condos. Thanks to travel magazine articles promoting Buenos Aires as the exotic destination of the moment, the country attracted 2.1 million tourists last year, a number expected to triple within nine years, especially now that Argentina has signed a tourism agreement with China. Some of the foreigners are snapping up bargain-priced apartments, while others are buying farms, estancias (ranches), and vineyards.

The Struggle Continues

Life, however, is no picnic for Antonio Espíndola, who one recent afternoon was pushing a rickety cart down elegant Calle Arroyo, dressed in ragged jeans, a scruffy shirt, and shoes that had seen much better days. He picked up a metal canister and tossed it into the cart to sell for scrap. We chatted for a while, and I asked him how he thinks the country is doing these days.

"They say the economy is booming, and I guess it is," he says. He lost his job as a restaurant dishwasher after the peso collapse, and since then has spent 12 hours a day scavenging for recyclable items. On an average day, he makes around $6 or $7, barely enough to pay the rent on his one-room apartment and buy a bit of food. "I'm hoping to find work in construction, but I don't know if that's going to happen," he shrugs.

Espíndola isn't the only one who's down and out in the Paris of Latin America. Unemployment, which peaked at 14.5% in 2003, is down to 10%—still high for a country that until the 1930s was one of the world's 10 richest. But for many Argentines, today's strong growth rates hold the promise of a slow but steady recovery of the country's potential.

"For us, the 1990s were a magical time but they were just an illusory bubble, a fantasy—we thought we could fill up our shopping carts indefinitely," says del Franco, the pollster. "Today, society is more rational—we want growth without the glamour." After a quarter century of peaks and troughs, Argentines crave stability above all else.

Smith is BusinessWeek's Mexico bureau chief.