Monday, August 20, 2007
Argentina: Pack Your Bags
On suitcases with cash and suitcases for moving out and into Argentina's presidential palace.
BY WALTER T. MOLANO
Suitcases are the images that currently define Argentina. There is the unclaimed Venezuelan suitcase, filled with hundreds of thousands of dollars in cash. There are the images of Cristina's designer luggage, as she scours the globe in an attempt to raise her international profile. There are also the images of President Kirchner's packed valise, as he prepares to vacate the Casa Rosada. The image of the suitcase is metaphorical for change, and it is appropriate because Argentina could be headed in a totally new direction.
A suitcase crammed with $790,550 [belonging to a Venezuelan businessman tied to PDVSA] was the latest incident of wandering cash in Argentina. A few weeks earlier, former Economy Minister Miceli was forced to resign after a bomb detail discovered a brown paper bag in her bathroom containing thousands of dollars in cash. With the elections only two months away, the Kirchner Administration did not need another scandal on its hands. Therefore, Argentine officials were forced to publicly demand an explanation from the Venezuelan government. They called for an official investigation and the dismissal of the [appropriate] PDVSA official -- who happened to be a close ally of President Chavez. The Argentine demands proved too much for the Venezuelan government, which had just announced another bond issue for Argentina -- as well as several new energy projects. Nevertheless, the incident may be a prelude to what lies ahead.
The media coverage of Cristina traveling abroad is the new image that the Kirchners want to cultivate. No longer seeking to be regarded as a leftist renegade, Cristina called for Argentina's reintegration with the global economic community. She issued strong criticisms of populist regimes, and met with business leaders abroad.
The Kirchners realized that their reliance on rogue nations, such as Venezuela, was limited. Venezuela's assistance came with strings attached. There were also extraneous costs. Argentina could attract much better financing, technology and investment if it rejoined the global economic community. Therefore, Cristina was rebranded as the market-friendly face of the Kirchner team which would allow the country to break with its recent past.
These images coalesce as President Nestor Kirchner packs his valise. The first Kirchner Administration was akin to a triage station, with the Administration tending to the urgent needs of a country in the midst of an economic collapse. Improvisations and stop-gap measures replaced the theoretical and academic-based policies that guided Argentina for the better part of the 1990s. The new measures successfully stabilized the country.
However, they were distortionary in the medium-term and highly damaging in the long-term. The tell-tale signs were evident by the end of President Kirchner's first term in office. There was the inflationary spiral, the embarrassing energy crisis and the growing chorus of discontent among the business class. Argentina had to introduce new reforms. Unfortunately,
President Kirchner could not do an about-face without soiling his own image and reputation. Hence, he had to vacate his post and allow someone else to introduce the necessary reforms-allowing him to come back at a later date with the changes already in place. Fortunately, his wife will be his successor.
Although Cristina's ideological history is no different from her husband's, she understands that her new role will be to normalize Argentina's relationship with the global economic community and liberalize the Argentine economy. These changes will put Argentina on a trajectory of higher growth and greater prosperity. Therefore, the suitcase is a welcomed symbol of what lies ahead.
Walter Molano is head of research at BCP Securities.