The man who would be king
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Emerging Markets

The man who would be king

Former Argentine economy minister Roberto Lavagna looks set to run for president. A newcomer to electoral politics, he is banking on his past track record to unseat likely incumbent Nestor Kirchner. The facts, he tells Emerging Markets, speak for themselves

Roberto Lavagna’s place in contemporary Argentine economic history is assured. The question now is whether he can translate his remarkable success as economy minister into an equally triumphant incursion into national politics.


His entry – if indeed that’s what it is – into the October 2007 presidential contest has been, by any measure, painfully hedged and hesitant, especially for those who are anxious to see a challenge to Nestor Kirchner, the popular but power-grabbing president who is widely expected to run for re-election. While speaking often in public and to the media, and meeting with a wide gamut of political figures, Lavagna has yet to declare his candidacy, repeating that there is still a long way to go before elections.


Lavagna, a self-proclaimed, lifelong Peronist, was named economy minister in 2002 by Eduardo Duhalde, the transitional president appointed by the legislative branch, following the unprecedented collapse of both political authority and the economy, beginning in December 2001. On his watch, the economy began to show signs of life, and by mid 2002 was stabilizing. In the following three years, Argentina’s economic growth defied gravity and virtually all forecasts as it consistently hit peaks of 8%, a performance that is expected to continue this year.


Before his departure from the post in November 2005, Lavagna and his close-knit team rammed a drastic foreign debt restructuring down the throat of the international financial community, which had to swallow a cut of approximately 75% on some $152 billion in loans. Equally historic, within the context of Argentina’s fiscally fickle record, significant primary surpluses accumulated, providing the country with a cushion it hadn’t been able to rest on in decades. The current primary surplus is 3.4%.


Good enough?

Will this track record be enough to propel a candidacy, much less open the doors of the Casa Rosada? Assuming that the 63-year-old economist decides to battle it out on the hustings, he seems to think that the facts speak for themselves. Speaking to Emerging Markets in his spartan private office, a block from the Obelisque and the gaudy heart of downtown Buenos Aires, Lavagna says, “After four years of administering the economy in the midst of the nation’s worst crisis, the data is there; the administrative capacity and ability is evident.”


Political analysts think that the challenge runs broader and deeper. Not only is the opposition fragmented and quarrelsome, but Lavagna, having never taken part in electoral politics before, totally lacks any national structure unless, with the dubious support of former and discredited president Raul Alfonsin, he manages to corral a crucial quota of the Radical Party into his fold.


As it stands now, President Kirchner seems invincible. With a public approval rating that oscillates between about 50% to 60% and an economy that keeps the wind in his sails, he also has access to every politician’s dream: a virtually bottomless treasure chest of state funds.


Winds of change

But, as Lavagna points out, winds are also blowing from other directions. Over the last months, he has persistently maintained that since the Kirchner victory in last October’s legislative election, the state has become intrusive, abusive and diverted from its principal tasks. “The role of the government is to provide basic public goods such as education, programmes directed at social issues, security and the strengthening of institutions,” he says, “and certainly not to become an active participant in economic areas that can be undertaken by the private sector. Period.”


He reels off a list of post-October actions taken by the government: very large increases in subsidies for the transport sector, the acquisition of a portion of Aerolineas Argentinas and of airports, the renationalization of Aguas Argentinas, the observable tendency of declining surpluses and, of course, price controls.


The attempt to contain inflationary pressures through controlling prices is the government’s weakest flank as it reflects a dangerous and, in Argentina, particularly dreaded problem, with impact on the whole population. Economists forecast that the underlying rate of annual inflation, even with broad – and some argue, coercive – price controls, is in the 12-14% range. On this issue Lavagna is unequivocal: “Price controls run counter to the interests of any economy that needs to attract investment; no favourable external scenario can overcome such internal mistakes.”


The former minister frequently uses the phrase “inclusive alternative” (alternativa superadora) to describe his political motivation. His vision is a socially progressive political party that places itself at the centre of the spectrum but that does not, as has often been the case in Argentina, believe it has to “destroy the governing party and begin all over again”.


Local issues

Even as a newcomer to politics, Lavagna is quite aware that the key issues for a presidential campaign will be local, local, local. Still, his years as an ambassador based in Brussels and Geneva and his own personal interest in trade issues, lead him to see foreign policy as extremely important for Argentina if, perhaps, not a priority question in a presidential election.


Lavagna discussed three areas he considers vital. First, he believes a failure of the Doha Round of trade negotiations will be extremely negative for emerging economies. After all, he says, the round was meant to be a “development round” and balance out the pro-industrial country bias of the earlier Uruguay Round. This in turn makes the strengthening of regional trade blocs like Mercosur all the more important for South America.


In addition to further reforms in international trade regulations, developing countries urgently need a far-reaching and fundamental reform of the IMF. While there are many proposals on the table, Lavagna insists that none of them will address the key malfunctions unless, “as an annex or consequence, the staff is able to recover greater freedom of analysis and stops working to favour the international financial sectors”.

Roberto Lavagna proved, especially in 2002, that he can stare down economic chaos. Should he run for president, he will have to look the demons of Argentine politics square in the eye.

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