Argentina: Nestor, the Good

Politicians want to be known for their strong convictions and ideologies. However, they are like chameleons—empty vessels that readjust according to their surroundings. This is in contrast to what political theorists expect of democracy. Scholars, such as Seymour Martin Lipset and Robert Dahl, outlined the institutional requirements needed for a fully functional democratic system. However, time and time again, politicians turn out to be nothing more than hollow entrepreneurs, only interested in remaining in power and maximizing their own benefits. There are plenty of stories in the U.S. and Europe of politicians switching sides in order to remain in power. Winston Churchill started his political career as a Tory, switched to the Liberal Party in 1904, and rejoined the Conservatives in 1924. Senator Joe Lieberman ran for Vice-President on the Democratic ticket in 2000. However, he became an Independent in 2006, when he lost his party’s primary. The idea of the political entrepreneurship is not relegated to the 21st century. The history books are full of famous leaders, who brimmed with fire and conviction, only to switch sides when it suited their needs. The pious Henry VIII, for example, turned on Rome when he realized the wealth that he could amass by seizing the Church’s property. The same thing occurred during the Battle of Plessey, when Army Chief Mir Jafar sold out to the British and led to their stunning victory against vastly superior forces. Today, we see similar reversals. Lula, which was considered the antichrist of the marketplace, is hailed as a champion of modern capitalism. Hugo Chavez, who recently ordered his tank battalions to the Colombian border, appears to be best friends with newly-elected President Juan Manual Santos. Therefore, why is it so hard to imagine the reincarnation of Nestor Kirchner as a market-friendly leader?

Kirchner came into the international spotlight in 2003, when he ran for office against former President Carlos Menem. He was relatively unknown at the time. The former Governor of Santa Cruz, he received some notoriety when he shrewdly moved several hundred million dollars of provincial money off shore in order to prevent it from being seized by the federal government in the run up to the debt crisis. He was then appointed Vice President by Eduardo Duhalde in 2002. With the nation in political turmoil, and reeling from the effects of the maxi-devaluation and debt default, Duhalde was forced to call elections in 2003. He selected Kirchner as his successor. Kirchner was considered to be weak, and this would allow Duhalde to plot his return four years later. Sensing the national mood, Kirchner ran on a platform that was hostile to the international financial community, the IMF and capitalism. In reality, Kirchner was trailing in the polls against former President Menem, but he got his lucky chance when the latter abruptly dropped out of the race. With Argentina’s political institutions in tatters, his administration was marked by rampant populism and wanton kleptocracy. It is little wonder why Kirchner became the scourge of the market. Even though the crisis helped purge the economy of its excess debt and realign it according to its areas of comparative advantage, investors and analysts keep the country at bay as long as the Kirchners remained in power. However, we are starting to see the chameleons change their stripes once again.

One of the main casualties of the economic crisis was Argentina’s political party system. In reality, it had already been severely weakened by former Presidents Menem and Alfonsin during the 1990s. However, the default of 2002 created a political vacuum that could easily be filled by whoever controlled the national apparatus. This allowed Nestor Kirchner to pick his wife as his successor, thus setting the stage for their subsequent re-elections. They also understood that, given the extent of the crisis, the country would have no access to the international capital markets. Therefore, there was no reason to appease the international community. But the situation changed. Sufficient time has gone by, and investors would love to have access to the country’s treasure trove of natural resources. Moreover, the Kirchners realize the immense wealth that Brazil amassed by appeasing the international community. This is the reason why the Kirchners are systematically taking steps to rehabilitate themselves. First, they settled with the holdouts. Two months ago, they introduced legislation to make the INDEC independent. They recently decided to allow the IMF to resume Article IV consultations in order to settle with the Paris Club. Soon, we will see a liberalization of public sector tariffs. All of these measures will slowly allow Nestor, the Bad, to morph into Nestor, the Good. Armed with the approbation of the market, Nestor Kirchner will sweep away the opposition and waltz into another four years in office. The amazing thing is that investors will welcome him with open arms.

2 Responses to "Argentina: Nestor, the Good"

  1. Matías Carugati   September 21, 2010 at 12:01 pm

    Though interesting, I believe that the analysis is misleading because of incomplete information. The “rehabilitating steps” taken by the Kirchners are not real: 1) even though the debt settlement was succesful, there still exists 10% (aproximately) of debt in default status; 2) the legislation to make INDEC independent won’t be approved by oficialist congressmen because of major modifications introduced by the opposition; 3) Article IV consultations with the IMF were manouvers made by government officials, and were repeatedly rejected by the presidential couple; 4) the liberalization of public sector tariffs will not occur until 2012, because of 2011 presidential elections and the potential impact on headline inflation.I hope these observations contribute to the Latam economitor.