- The Washington Times - Friday, May 23, 2003

With former Argentine President Carlos Menem withdrawing from a second-round presidential run-off, fellow Peronist Nestor Kirchner will assume the presidency from President Eduardo Duhalde tomorrow. This development could, in the near-term, destabilize Argentina politically and dampen investor confidence.

Mr. Menem’s decision means that Mr. Kirchner wins the presidency by default. Without a clear electoral victory and a mandate from the people, he will attempt to govern from a weakened position. Ironically, Mr. Menem’s withdrawal removes the possibility that Mr. Kirchner could have been president with one of the highest winning margins, as predicted, and leaves him as one of the least-voted for presidents in the country’s democratic history. Indeed, he did not even win the first round of the run-off, garnering 22 percent support to Mr. Menem’s 24.4 percent.

Governance will be problematic for Mr. Kirchner. To facilitate the passage of key legislation and reforms, he will need to build consensus across the fractious Argentine political system. He lacks personal supporters in either house of Congress, a situation that is further complicated by political infighting in his own party. These divisions will need to be reflected in his political team, with a range of appointments from different parties and disciplines. Mr. Kirchner’s skill at diplomacy will be quickly and sorely tested at home.

Sixteen months after the country’s disastrous currency collapse, Mr. Kirchner faces daunting economic reforms that his political situation and own priorities may well undermine.

In general, his policies are center-left and nationalistic. Mr. Kirchner made ambitious promises to increase employment and economic growth. He is likely to seek further International Monetary Fund support. Also high on his economic agenda are resolution of debt-repayment issues, strengthening of the banking sector and renegotiation of privatized utilities’ contracts. Resolution of debt issues and contract renegotiation are likely to be protracted processes with creditors and foreign companies unlikely to receive favorable terms.

Mr. Kirchner’s proposals to increase government participation in the economic system and seek debt pardons or renegotiations have raised concerns among the business community. Consequently, despite Mr. Kirchner’s stated desire to attract new foreign investment, investors are likely to take a wait-and-see approach before putting in any significant money. Consequently, Argentina’s economy is unlikely to show major growth in the short- to medium-term and will remain fragile.

The future direction of Argentina’s foreign policy is likely to focus on the country’s immediate neighbors. Mr. Kirchner has already visited Chilean President Ricardo Lagos and Brazilian President Inacio (Lula) da Silva. The leaders’ similar ideological stances should benefit regional relations. Mr. Kirchner is likely to favor resuscitation of the Mercosur regional trade bloc over President Bush’s Free Trade of the Americas plan.

Argentina’s electoral outcome may take months or years to make its full effect known. But in the short term, the lack of initial legitimacy and political fractiousness may cripple Mr. Kirshner’s reform agenda and his efforts to bring economic stability to one of the hemisphere’s key bellwethers.

Nick Panes is Latin America analyst for Control Risks Group.

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