de la Rúa: a "low-key conservative"

Louis Proyect lnp3 at
Tue Oct 26 12:49:00 MDT 1999

Comment / Lex (Financial Times)

ARGENTINA: Victory for low-key conservative

The victory of Fernando de la Rúa, a low-key conservative, in Argentina's
presidential elections is good for democracy in a country that has long
favoured flamboyant strongmen. Whether it will be enough to restore
international investors' faith in Argentina's economic prospects is less

In the short term, things are improving. Mr de la Rúa's commitment to
stability and the peso's one-to-one peg to the dollar are beyond question.
His fiscal stance may be even tougher than his predecessor's - necessarily
so, since Argentina's budget deficit will rise to about 2.5 per cent of
gross domestic product if left untamed. The new government is expected
rapidly to announce spending cuts and tax increases that should win warm
praise (and possibly more money, if needed) from the International Monetary
Fund. Happily, the economy appears to have bottomed out, though it will
still shrink by 3-4 per cent this year.

But the long-term outlook is less bright. Without an absolute majority in
Congress and two-thirds of the provinces controlled by the defeated
Peronists, Mr de la Rúa may have trouble pushing through necessary labour
and tax reforms. A new revenue-sharing agreement with the spendthrift
provinces is also needed. Yet without structural progress, Argentina will
find it harder to persuade investors to stump up $17bn next year to cover
its external financing needs. Meanwhile, with a tightening fiscal policy
and no flexibility to cut interest rates due to the dollar link, recovery
from recession is likely to be anaemic. Argentina's growth, at around 2 per
cent next year, will be half that of Mexico or Brazil. There are more
attractive markets in Latin America.

Louis Proyect

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