Where to, Argentina?

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Last week, U.S. Assistant Secretary of State for Western Hemisphere Affairs Thomas Shannon flew to Argentina on a crucial mission. U.S. relations with this South American nation have been marred by the controversial policies followed by both the old and new Kirchner administrations that have governed Argentina since 2003.

Mr. Shannon's tour featured high-profile meetings with the president and other top officials. But how far this visit will go in mending bruised relations with Washington is still an open question.

Argentina, the second-largest economy in Latin America, is an important trading partner of the United States. Imports from Argentina include a vast array of products, from soy beans to wine to tango music. Argentina has historically also been an important U.S. ally in South America in anti-drug trafficking and security initiatives.

In recent years, however, Argentina's status as an ally has appeared shaky. It should be recalled that Argentina's 2001 default on more than $80 billion debt to international creditors was the largest sovereign debt failure of its kind in history. Its actions cost billions in taxes on both the personal and corporate income of Americans and U.S. businesses that had lent money to Argentina.

We're not talking about a poor country here, either. Argentina deliberately remains in default despite sporting a robust aerospace industry, a growing military and a vigorous industrial and agricultural base. Moreover, Argentina has enjoyed economic growth of roughly 9 percent a year for the last few years, driven largely by global commodities markets. Argentina's international reserves now exceed $50 billion. While the nation clearly has the financial means to make good on its obligations to foreign and local creditors, it simply refuses to pay its bills.

Most disturbingly for Argentina, the default has badly undermined the country's ability to attract the capital it desperately needs to fuel future economic growth. This self-imposed isolation from international financing has consequences: The Kirchner governments — first of President Nestor Kirchner and now of his wife, Cristina Fernandez, who recently succeeded him — have deepened political and economic ties with Venezuelan strongman Hugo Chavez. The Argentine government under Nestor Kirchner began receiving loans from Venezuela to bolster its unstable economy in the wake of the monumental default.

More recently, the Chavez regime was caught funneling funds to Mrs. Kirchner's presidential campaign, which in turn led to a highly publicized criminal prosecution in Miami.

Mr. Chavez has been actively influencing politics in other Latin American countries as well. It was recently acknowledged that he has been sponsoring the Colombian terror organization known as FARC. This has generated calls from members of the U.S. Congress to list Venezuela officially as a sponsor of terror, like Syria and Iran, both countries Mr. Chavez has actively courted.

Argentina's financial mismanagement has served as the backdrop for still further actions that place it outside of international norms. In early April, Mrs. Kirchner claimed an "inalienable" right to the Falkland Islands that are under British control. Mrs. Kirchner targeted as well her domestic critics, imposing a stiff tax on Argentine beef farmers and comparing them to the "Mafioso."

All these red flags — the close alliance with Hugo Chavez, antagonizing the British and U.S. governments, and pursuing questionable financial policies — raise serious questions about where Argentina is headed. Nevertheless, such a picture could be vastly improved by President Cristina Fernandez Kirchner at this early stage of her administration.

For starters, Argentina could follow the example of Brazil, Colombia and other Latin American nations in advancing firmly and responsibly in the global economy. Likewise, because of its important history, Argentina should aspire to play a leadership role in foreign policy issues throughout South America.

This, however, demands a marked change of its policies — beginning with addressing its outstanding debts. By prudently joining the ranks of responsible, developed nations, Argentina should also be rewarded with greater U.S. cooperation and friendship. Hopefully, this is the message being conveyed in Buenos Aires by Washington's envoys.

Jaime Daremblum is Costa Rica's former ambassador to the United States and is a senior fellow with the Hudson Institute and director of its Center for Latin American Studies.