Why Argentine Governor Gets Red Carpet Treatment

Gov. Eduardo Duhalde of Argentina recently concluded a round of meetings with top US officeholders, including Vice President Gore, and top World Bank and International Monetary Fund officials. He was given a welcome equivalent to a head of state, yet Mr. Duhalde is only the governor of Buenos Aires province. Yes, he is a good friend of US Ambassador James Cheek, and the province is the heartland of Argentina, but that hardly explains the new-found American interest in Duhalde.

What does is that the governor is the leading candidate in the ruling Peronist Party and the odds-on favorite to be the country's next president. There is, however, a complication: The elections are scheduled for 1999; and, even by American standards, that is a long campaign. Moreover, in Argentina, where governments often end abruptly in turmoil and military takeovers, its outcome is far from assured.

But Argentina today is a vastly different country than it was in 1989 when President Raul Alfonsin threw in the towel and resigned his office prematurely because inflation had reached unprecedented levels. (In Argentina that meant consumer prices were doubling every month in a land where incomes had remained fixed for years.) Incoming President Carlos Menem, facing a social revolution that would have dwarfed Mexico's upheaval of 1910, chose the only way out - a radical return to capitalism complete with less and better government. The gamble has paid off. Argentina, once a statist nightmare, has cut regulations, lowered taxes, and sold off inefficient government operated enterprises that ran the gamut from steel to subways. Even the Buenos Aires zoo has been put on the block.

Inflation conquered

As a result, Argentina now enjoys a rate of inflation lower than the United States. The peso is equal to the dollar and remains stable because the era of printing-press money is over. By law, the peso must be fully backed by hard currency and gold. For a major South American nation to achieve such a dramatic turnaround in five years is unheard of - a matter of quiet celebration. And yet in politics there is no sure thing. President Menem has begun his second term, but according to the Constitution, he cannot succeed himself. His hope is to take a four- year break and run again in 2003.

For that to happen, however, Argentina needs to remain on track. And that, too, is far from certain. In Russia and Eastern Europe, the death of communism hasn't meant that capitalism has completely won the hearts and minds of Russians, Poles, and Slovaks. Resurgent former communists, ultranationalists, and demagogues can retake (and have retaken) power, promptly making a mess of things. Argentina may be no different.

Undoing 50 years of economic folly takes longer than most people think. In the last year, the country has slipped into recession thanks to the so-called tequila effect. Disillusionment with the Mexican economy, following the peso crash, spread instantly to Buenos Aires - through no fault of the Menem administration - casting the country's recovery into the doldrums with historically high unemployment of 15 percent and more. President Menem has three years to correct the situation and keep the reformers in the Peronist Party in charge - if he is to have any hope of another term.

Enter Duhalde. By nature, the Peronists are a fractious lot. Despite the weakness of the opposition Radical and Frepaso Parties, the party of Menem is fully capable of snatching defeat from a likely 1999 victory. As a consequence, party leaders have blessed Duhalde as successor. He is a successful reform governor of the country's most populous province, having carried out privatization at the provincial level in the last stronghold of statism in Argentina.

One reason for his present trip to the US, in fact, is to stir interest in the sell-off of the province's creaky water works.

Duhalde's early declaration, however, has ruffled some feathers. Menem, for one, though a Duhalde supporter, does not enjoy a growing reputation as a "lame duck" (now a familiar term in Argentina) less than a year into his second term. And the governor's enemies are spreading stories that he's involved in narcotics trafficking and prostitution in his province - though so far there is no proof.

Argentines still gloomy

But the charges have clouded the waters, and three years is a long time for rumors to gestate. Moreover, although the governor remains popular in his province, which accounts for nearly 40 percent of the population, many Argentines remain gloomy about the future.

Meanwhile, the Clinton administration, in what may be an unusual display of foreign policy acumen, has welcomed a candidate not even nominated by his party. Why? When the hurricane of market reform hit our neighbors at the beginning of the decade, it looked, at long last, as if democracy and capitalism would sink deep roots into this otherwise tumultuous region. But Latin America now seems precarious.

In recent years Mexico has gone backward. So has Venezuela. Columbia's President Samper is strongly suspected of being bought and paid for by his country's narco-traffickers. Brazil remains wobbly.

Other than Peru and Chile, only Argentina is entirely on track, and Argentina alone can provide the critical mass for market reform to continue throughout the region. By all accounts, Duhalde is no Menem - but he is the best bet to keep Argentina from sliding into the past. The Clinton Administration may be right on this one.