- The Washington Times - Monday, January 21, 2002

Argentines recently replaced a democratically elected, pro-free-market government with its ideological opposite. To quell rioting, the new president, Peronist Eduardo Duhalde, vociferously criticized Argentina's free-market policies. The Peronists typically adjust to whatever ideological flavor suits the day, and could change just as did former President Menem. If permanent, however, this return to populism will undo the political and economic progress so painfully achieved during the 1990s.

Although financial-market contagion does not appear to be a significant risk, political contagion is now rearing its ugly head. Political leaders in the hemisphere are watching closely as fears spread that the populist backlash in Argentina will spark similar reactions in other countries such as Brazil, which has presidential elections this autumn. The ultimate costs to the United States could be the loss of the Bush administration's regional priority: The Free Trade of the Americas (FTAA) trade initiative.

The crisis in Argentina is the result of financial mismanagement and structural deficiencies in its political system. Some Argentine politicians and others have blamed the free-market/neo-liberal economic model for the meltdown. However, economic collapse could have been avoided if Argentines had, in a timely manner, decreased bloated spending by the provincial and federal governments, and adjusted exchange rate and monetary policies to better contend with Brazil, Chile and other trade and investment competitors.

In last October's legislative elections, Argentines sent a clear message rejecting the elite political class. An average of 17 percent of voters nationwide submitted adulterated ballots, which reached 40 percent in some provinces. A November 2001 poll by the Buenos Aires daily La Nacion revealed that only 10 percent of Argentines expressed faith in political parties and only 11 percent supported Congress. Argentines should consider at least two political reforms to bridge this dangerous disconnect between voters and the political leadership.

We have seen in many countries that legislative elections dominated by the party list system spawns a lack of direct responsibility of elected officials to the voters. Put simply, the Argentine people do not know who their federal deputies and senators are, and consequently do not know how to hold them individually and transparently accountable. The remedy for this deficiency is the adoption of single member districts, which would also create a demand for better political communication with constituents.

We have been told that there is a market, particularly among the younger generation and the middle class, for the creation of a national, broad based, non-personalistic political party, which supports democracy, private-property rights and free markets. Such a political party meeting all these criteria does not now exist, but if created could truly be responsive to the more positive aspirations of the Argentine people, while being held accountable through single member district elections.

To help Argentina bring about such economic and political changes, Washington needs to get its Latin American policy-making machine in order. The administration has filled the assistant secretary for the Western hemisphere affairs position at the State Department, which will help navigate regional policy. Otto Reich's appointment had been unnecessarily held up for months, leaving a critical hole in the Bush administration's ability to formulate and execute policy.

U.S. relations with Argentina require a holistic approach integrating U.S. financial, political and trade diplomacy into an effective strategic instrument that will also be supported by the U.S. Congress. Therefore, the Bush administration may wish to appoint a special envoy to Argentina to provide a direct politically high-level line of communication between Washington and Buenos Aires, and to efficiently integrate these often disparate channels of policy, which span the departments of State, Treasury, Commerce and U.S. Trade Representative and the National Security Council.

Hopefully, the Duhalde administration will eventually recognize the importance of developing a modern free-market economy, rather than blaming it for the country's ills. In the meantime, Washington could call on nongovernmental organizations and civil society to develop a grass-roots program at the provincial level to educate Argentines on what free-market principals really mean in the context of their individual freedoms under a democracy. Argentina greatly benefited from these principals during the 1990s, as demonstrated by its once large and strong middle class, and the entrepreneurship of its small-business owners. Now is the time for an Argentine-U.S. partnership to make the case that a reversion to a protectionist economy dominated by the state will prevent them from enjoying the full advantages of their talents, creative potential and vast natural resources.

Buenos Aires and Washington have a chance to lift Argentina out of its collapse, and minimize the risk of contagion to the U.S. free trade and democratic agenda. Let us hope that both are willing to do what it takes.

George A. Folsom is president of the International Republican Institute, a nonprofit democracy-building organization based in Washington.

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