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Monday, December 10, 2007

Argentina: Ten Reforms for Cristina

How Cristina Fernandez can make Argentina friendlier to foreign investors.
HER OWN PATH: Cristina Fernandez has gone from First Lady to President and will now have to chart her own course. (Photo: Argentine President's Office)


Will Cristina Reduce Argentina's Inflation? Results / Other Polls


As Cristina Fernandez assumes Argentina's presidency, succeeding her husband Nestor Kirchner, she might want to consider some radical action to boost her country's poor image among foreign investors.  Here are ten reforms that will help.

1. Pay all outstanding debt to creditors. There is no more powerful message you can send than that. Global investors have lost $84 billion thanks to Argentina's debt default in 2002 and Kirchner's renegotiation with 76.2 percent of debt holders in 2005, according to the American Task Force for Argentina (ATFA). Thanks to an export boom, Argentina can more than afford to pay the outstanding debt. What Argentina can't afford is to continue being excluded from international markets thanks to its debt problems.

2. Reduce public spending.
That's the only proven way to effectively reduce inflation in countries seeing price hikes. With current policies, Argentina's inflation is growing, not falling. The country will have Latin America's second-highest inflation this year, according to the International Monetary Fund. Next year, inflation will grow even more, the fund predicts.

3. Lift the freeze on utility prices. The utility price controls have deterred badly-needed investments in Argentina's energy sector, resulting in an energy crisis that has led to electricity rationing for individuals and companies alike.  

4. Lift all price controls on food and other products.
 They have become part of the inflation problem, rather than the solution.

5. Reform INDEC.
Make the statistics agency INDEC a truly independent entity with technocrats rather than political loyalists running it, much like the U.S. Census Bureau. Let the new revamped INDEC provide revised inflation statistics and admit past errors. Only then can it start to recover the credibility it has lost.

6. Provide de facto independence for the central bank. Name a respected, independent economist who can bring back credibility to the institution.

7. Lift all export taxes and restrictions. Argentina is only shooting itself in the foot by adding burdens to the country's export sector.

8. Boost competitiveness.
Under President Kirchner, Argentina has fallen from 78th place worldwide in 2003 to 85th place today on the annual global competitiveness index from the Swiss-based World Economic Forum. As late as 2001, it was in 49th place.

9. Boost transparency.
Stop shady dealings with Venezuela (which includes suitcases full of cash being flown in from Caracas) and implement a zero tolerance policy on corruption. Argentina has become worse under Kirchner despite his condemnation of past corruption. The country has gone from 92nd place in 2003 - Kirchner's first year - to 105 now, according to Transparency International's annual ranking of corruption.  

10. Stop the campaign against Botnia's pulp mill in Uruguay. Withdraw the legal suit against Uruguay at the International Court of Justice in Hague and arrest Argentine protesters that block any roads leading to Uruguay.  

If she implements even half of these reforms, Cristina will go a long way in improving investor confidence in Argentina. What she shouldn't do is continue her husband's catastrophic economic policies. If she does, Argentina will have plenty to cry about.

© Copyright Latin Business Chronicle


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From: Frank

i totally agree with the author. who wants to invest in a country that doesn't comply with the payment of its debts. aslo due to the often ultra nationalistic feelings (these feelings make a country stubborn in its decission) in this country, I don't see a real change . during the second world war argentina was the fourth richest country of the world and now it must be happy if it can score number twenty five.

From: Daniel

I'm not a fan of the current argentine government, but those reforms, once implemented, would last only a few months, before a public revolt put an end to them and those in charge. They will create a social crisis similar to the one that is trying to avoid.
An intermediate solution with shared costs is more intelligent, although not very investor friendly.

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