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De la Rua's Challenges: Balancing Argentina's Budget, Attracting Investors The moderate new President needs the Peronists' support to help boost the economy Following Fernando de la Rua's convincing win in Argentina's presidential election Sunday, Oct. 24, Argentines are turning their attention to what measures the President-elect might take to lift the country out of recession. With nearly all of the votes counted by the morning of Oct. 25, de la Rua, of the opposition Alliance group, had 48.5% of the votes, compared to 38% for Eduardo Duhalde of the ruling Peronist Party, and 10.2% for former Economy Minister Domingo Cavallo. Throughout his campaign, the moderate de la Rua, 62, tried to appease Argentines angry over the slumping economy, while carefully weighing his words with foreign investors, who are concerned about the country's growing budget deficit. In a celebration speech to supporters Sunday night, de la Rua promised to reduce unemployment, which is near 15%, and push for improved health care and education. "We are going to carry out change, establishing social justice and work," de la Rua declared. But de la Rua, who takes office Dec. 10, won't have much money to pump into the economy. Argentina's budget deficit will surpass 2% of gross domestic product this year. By most standards, that's not alarming. But because Argentina uses a currency board, which effectively eliminates monetary policy, the government must impose rigid fiscal discipline to maintain credibility in financial markets. ECONOMIC CHANGE. Argentina's restless business community would like to see the soft-spoken de la Rua take charge right away. Many believe that Argentina must strive to become an investment-grade nation in the eyes of foreign ratings agencies. That means balancing the budget and drawing up a long-term economic plan agreed upon by all major political parties, says Carlos Leone, CEO of steelmaker Acindar. Leone and other business leaders believe that de la Rua must reach a political consensus with the Peronists, who maintain a majority in the senate, to allow congressional approval of measures such as tax cuts. That, in turn, would boost investor confidence. "Investment grade in Argentina is key," says Leone. "It would create a chain reaction, with the end result being a better working environment for businesses." The election signals the end of the Carlos Menem era, at least for now. Even Menem's opponents admit that during his 10-year tenure as President, he helped transform Argentina from a backwater into a modern nation. When he took office in July, 1989, inflation was a staggering 200% per month and the economy was closed and inefficient. Menem privatized state enterprises, from the railroads to the phone company. With the help of then-Economy Minister Cavallo, Menem implemented the currency board, which pegged the currency to the U.S. dollar, and essentially prohibited the government from printing money to cover deficits. As a result, the economy grew an average of nearly 8% over four years, and inflation dropped to virtually nothing. HIGH-PROFILES. Now Menem, and to some extent Cavallo, are blamed for a slump that will send gross domestic product tumbling by more than 3% this year. But it would be a mistake to write off either Menem or Cavallo. As head of the Peronist Party, Menem will keep a high political profile. He was banned by law for running for a third consecutive term, but he vows to be a candidate in 2003, when he will be 73 years old. Though Cavallo took a beating in Sunday's vote, he has turned his new Action for the Republic Party into a major player in Argentine politics and a potential power broker in congress. Sunday's election also marked a change in Argentina's loyalty to the U.S. in world affairs. Menem has publicly and loudly agreed with U.S. policy on everything from Cuba to Bosnia. De la Rua isn't likely to purposely antagonize Washington, but he almost certainly will discontinue Menem's so-called ``automatic'' support for the U.S. De la Rua's Alliance also emerged the victor in congressional and provincial elections. The party won four of six provincial governorships contested and about half of the 130 seats up for grabs in the Chamber of Deputies. Though it won't have an outright majority, Alliance will be the biggest force in the lower house and should be able to win most votes there with the help of allied provincial parties. The Peronists, however, still hold the most important post outside of the presidency. In the race for governor of Buenos Aires province, which holds a third of Argentina's population, Vice-President Carlos Ruckauf defeated Alliance candidate Graciela Fernandez Meijide, a human rights advocate those son was killed in the 1976-83 military dictatorship's "dirty war." Most observers consider the position of Buenos Aires governor more influential than Vice-President. Duhalde, in fact, was Menem's first Vice-President but quit to make a successful run for governor of Buenos Aires. By Ian Katz in Buenos Aires
EDITED BY THANE PETERSON
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