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A Bitter Pill for Argentina

January 04, 2002

When a nation churns through five presidents in two weeks, you know the job is, well, challenging. Indeed, running Argentina has always been tough, and it won't get easier as the country sinks deeper into economic crisis and people swarm the streets, banging pots and setting fires. That doesn't mean that President Eduardo Duhalde, who took office Wednesday, is doomed to failure. To avert disaster, however, will require far more discipline and resolve than either he or Argentina have so far demonstrated. Outside help wouldn't hurt.

Duhalde has experience as a senator, vice president and governor of the province of Buenos Aires, but his record is tainted by large budget deficits and accusations of corruption. More worrisome is his pledge, during his unsuccessful bid for the presidency in 1999, to cut taxes and reject the budget cuts demanded by the International Monetary Fund.

There is, however, hope. ''Argentina is broke, sunk," he declared this week, a signal that he is beginning to face reality and willing to make his nation confront it.

Now, he must come up with a plan for sustainable economic growth that will at once satisfy international financial institutions and the United States (while attracting foreign investors) and calm the average Argentine, who is understandably frantic watching the economy leak like a harpooned blimp. To that end, Duhalde needs to set three priorities.

* He must present a realistic budget that forces Argentines to live within their means.

* He must keep the banking system from going under, even though that means bank owners and depositors alike will end up losing money and the federal government will have to pitch in with public funds.

* Finally, he must find the least painful way to devalue the currency, which is seriously inflated. Mexico did this in 1995, and Brazil in 1999, and both survived the shock.

Attaching the value of the peso to the dollar no longer makes sense for Argentina. Linking the two currencies at a 1-to-1 rate helped the nation lower inflation to acceptable levels a decade ago. Then the dollar got stronger and Argentina lacked the flexibility to adjust the peso's value, even as its products became uncompetitive in international markets. Now Argentina needs to adopt a floating exchange system. It also needs to wean creditors from demanding dollars for almost every transaction, including paying the rent. Politically, this "dedollarization" will be Duhalde's most difficult task, since most long-term contractual agreements are in dollars.

The new president seems to have the support of the political establishment. Now he needs the political courage to tell a suffering people that they must suffer even more, and to withstand their wrath while disciplined austerity slowly brings Argentina back from the brink of catastrophe. If he shows that determination he deserves the support of international financial institutions and the U.S.

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