Argentina teetering on the brink

Protests force the cabinet to resign. A state of siege is declared.

In February 1989, Venezuelans were finally so furious with years of economic slide, they decided they weren't going to take it anymore. They banged pot lids and rioted, in an event that historians now see as the beginning of the rise of a populist strongman Army colonel - and now president - Hugo Chávez.

South Americans are banging pots and pans again, but this time it's in Argentina. And it's a clanging that is being heard around a region sunk in doubts about a decade of economic and political reforms.

Frustrations over a three-years-and-counting recession boiled over this week as Argentines took to the streets, looting stores for food and forcing the resignation of the cabinet of President Fernando de la Rua. Mr. De la Rua declared a state of siege, which yesterday only seemed to inflame emotions further.

With the country teetering on bankruptcy, Economics Minister Domingo Cavallo - brought in earlier this year as the white knight whose economic reforms saved the country in the early 1990s - abruptly resigned Wednesday. That raised new doubts about the direction the country will take, and puts even more pressure on a president already suffering basement-level approval and not known for an ability to make bold decisions.

"In many respects, we're worse off now than we were in 1989," says Rosendo Fraga, a political analyst in Buenos Aires. "At least before there was an alternative on the horizon - a new president and an economic model worth trying. Now people feel helpless. It's as if nothing really changed at all."

Argentina's collapse into chaos reflects the frustrations that have built up across Latin America over a bad economic year. These frustrations underscore deep doubts about the free-market, free-trade reforms encouraged by Washington. They also show deepening reservations about the ability of democracy to meet people's basic needs.

"All I want is food so I can feed my family," cries Santiago Orozco, who's been unemployed for 4 years and says he can't feed his 3 children on the income he earns selling soft drinks on trains and buses. "If we don't get anything today, we'll be back tomorrow," he says, standing outside the guarded gates of a Carrefour supermarket in Avellaneda, a working-class suburb of Buenos Aires.

In the past week, more than 30 supermarkets in 6 provinces have been violently ransacked by angry crowds of looters fed up with government austerity measures and endemic poverty. Local media report as many as 16 people have died in clashes.

Despite the unrest, no one is yet predicting the rise of a Chávez in Argentina - in part because no such figure exists there, but also because Argentines harbor little nostalgia for military rule.

But that does not rule out the kind of populist response Argentines turned to a decade ago, ushering in President Carlos Menem. President Raul Alfonsin was prompted to step down in 1989, when similar riots wracked the country.

Under the 10-year rule of President Menem inflation was killed thanks in part to the adoption of a currency board that pegged the peso to the dollar. Together with other reforms that opened up the economy and attracted foreign investment, Argentina experienced one of the longest runs of economic expansion in the modern era, growing an annual average 5.7 percent from 1991 to 1998.

But the currency board has since fallen out of vogue. A wave of emerging market devaluations - begun in Asia and culminating with its largest trading partner, Brazil - have sapped Argentina's once proud manufacturing base of its competitiveness. And while Menem solved the country's devastating inflation - the cost was in part responsible for the massive debt that now buries Argentina.

Through the current smoke of riots and din of cast iron pots, however, analysts generally see a less knee-jerk public today than a decade ago. Analysts say it seems unlikely, despite its frustrations, that Argentines will turn back to South America's old fix, the military.

"These events have huge implications for Latin America, for prospects for free trade and globalization, because they put the whole economic model of the last decade under serious question," says Michael Shifter, an expert at the Inter-American Dialogue in Washington. "But I don't see the Argentines going back to a [Juan] Perón or even to a Chávez, in part because that person is not there, but also because in their hearts it's not what they want."

Argentines want a strong leader with an ability to make tough decisions, Mr. Shifter says, but not a strongman. "So for right now there's a void," he says, "and that's part of the explanation for this dangerous flareup."

Others see a real danger the Argentines will blame the wrong culprit for their troubles - and thus make matters worse, only deepening the trouble of a region already sunk in an economic slide.

"The implications of these events will be large, in Argentina and around it in the region, to the extent that people misunderstand the causes of the crisis," says Robert Pastor, a Latin America expert at Emory University in Atlanta. "The problem is years of deficit spending that plunged the country in its current debt," he says, "but people are likely to blame globalization, free trade, and dollarization of the economy. And that will tip people towards populist reactions."

Internationally, many observers do not foresee the kind of global financial instability that similar meltdowns in Russia and Brazil caused in 1997 because most have viewed the Argentine collapse as coming for a long enough time that markets and investors gradually prepared for it.

But that does not mean there will be no repercussions. An already stagnant region will be hit harder, and the open door to negotiating a free trade area of the Americas by 2005 - a dream of President Bush - is likely to close to some degree. Regional integration under Mercosur, which ties Argentina to giant Brazil, could also face further setbacks - even though some analysts say more integration of regional economies is the direction Argentina should now boldly take.

"Menem tackled disastrous economic problems a decade ago with a bold move to peg currency to the dollar," says Mr. Pastor. "Some equally bold move to shake off this crisis is needed now," he adds, saying one example would be for Argentina to realign its currency to a Mercosur currency, probably Brazil's real.

The necessary "bold move" to turn Argentina around could plausibly include de la Rua's resignation, Pastor says. But that would not indicate a failure of democracy, he says.

While every major survey shows mounting frustrations in Latin America with the social conditions democracy has delivered, that doesn't mean the public - or leaders - is ready to forsake it. "Even Mr. Chávez has gone back to the polls six times to face the public's judgment. For now, even he's sticking to that."