NotiSur - 01/11/02 - Argentina, Chile Via NY Transfer News * All the News That Doesn't Fit [Reminder: This is a private reading copy for your personal use only. It may not be redistributed under the terms of our subscription with LADB. Thanks -- NY Transfer] ------------------------------------------------------------ L A T I N A M E R I C A D A T A B A S E NotiSur - South American Political & Economic Affairs ISSN 1060-4189 Volume 12, Number 1 January 11, 2002 ------------------------------------------------------------ Copyright 2002, Latin America Data Base (LADB), Latin American Institute, University of New Mexico Director: Rebecca Reynolds Bannister Editor: Patricia Hynds Staff writers: Carlos Navarro, Robert Sandels LADB ARCHIVES: Back issues are referenced to provide historical background relevant to the articles in this newsletter. These can be accessed with a subscription to the LADB searchable on-line archives at http://ladb.unm.edu/ by clicking on Search Archive. For subscription information, e-mail info@ladb.unm.edu or call 1-800-472-0888. In This Issue: ARGENTINA: EDUARDO DUHALDE BECOMES FIFTH PRESIDENT IN TWO WEEKS * De la Rua unable to resolve crisis * Series of presidents * Demonstrators force another president to leave * Eduardo Duhalde takes over * Devaluation announced, but banks remain "on holiday" * Winners and losers * IMF blamed for contributing to crisis CHILE: PRESIDENT RICARDO LAGOS NAMES WOMAN DEFENSE MINISTER IN NEW CABINET * New Cabinet announced * Bachelet makes history ____________________________________________________________ ********************* ARGENTINA ********************* ARGENTINA: EDUARDO DUHALDE BECOMES FIFTH PRESIDENT IN TWO WEEKS Escalating protests throughout Argentina during mid-December forced both President Fernando de la Rua and his Economy Minister Domingo Cavallo to resign. Within ten days, the country saw three other presidents take office and quickly leave. Finally, on Jan. 2, Eduardo Duhalde, who was defeated two years ago by de la Rua, assumed the presidency of the troubled country. In the process, Argentina has defaulted on its debt-service payments, devalued its currency, and declared a lengthening "banking holiday." De la Rua unable to resolve crisis As the economy hovered on the verge of collapse after four years of recession, the de la Rua government struggled to make payments on its US$132 billion debt, partially froze bank accounts to prop up the banking system, and faced rising joblessness and plunging consumer confidence (see NotiSur, 2001-12-14). De la Rua and Cavallo tried a series of unsuccessful measures to turn the economy around, but they adamantly held on to the currency peg Cavallo had introduced in 1991, which tied the peso to the dollar at an exchange rate of one to one. Cavallo called a devaluation "unthinkable." "Convertibility is the monetary system we have in Argentina, and I think the people want it to continue. Very few people want to abandon it," Cavallo told a news conference Dec. 14. "On the contrary, there's more support for dollarization." "The government is introducing new measures every day," said former deputy economy minister Eduardo Curia. "But no one is proposing any alternative to the dollar peg." Cavallo's decision, effective Dec. 3, to curb the amount of cash a person could withdraw from the bank each month enraged the public and led to widespread protests. A 24-hour strike on Dec. 13 against the measures was widely supported, bringing the country to a standstill. Although the government dismissed the effectiveness of the strike, on Dec. 14, Daniel Marx, the highly respected deputy economy minister, resigned. Although he cited personal reasons, most analysts said he left because of his disagreement with the caps on bank-account withdrawals. As the situation deteriorated, de la Rua met with his predecessor Carlos Saul Menem (1989-1999), leader of the opposition Partido Justicialista-peronista (PJ), to discuss efforts to save Argentina. Still, convertibility had become an obsession and an end in itself, and ultimately it not only brought down the government but also had to be discarded. On Dec. 17, the government said it would slash spending by another 20% in 2002, which set off renewed protests that soon turned violent. Angry demonstrators in Buenos Aires burned tires outside supermarkets demanding food handouts. Police in riot gear used tear gas and rubber bullets to disperse protestors and looters who ransacked shops and supermarkets in some of the worst rioting in a decade. By Dec. 20, the death toll had risen to 27, and de la Rua declared a 30-day state of siege, suspending constitutional rights and giving the government broad powers to respond to the violence. Cavallo resigned, and a judge issued an order banning him from leaving the country. Late that night, de la Rua also resigned, leaving the presidential palace by helicopter. In his last comments as president, de la Rua lashed out at the opposition Peronists for rejecting his request the day before for a unity government. "The Peronists made a mistake," he said. Series of presidents Congress met Dec. 21 to accept de la Rua's resignation and put together a caretaker government. Under the Constitution, Senate president Ramon Puerta of the PJ became the president for what he said would be "only 48 hours." When Congress met, it named Gov. Adolfo Rodriguez Saa of San Luis province president and set new elections for March 3. Rodriguez Saa was sworn in Dec. 23. He immediately canceled payments on the public debt. He said he would use the debt-service money for emergency social programs and to create jobs. He also said he would cap salaries of government officials at US$3,000 a month, including his own, and would sell all government-owned cars and planes. Rodriguez Saa said, however, that he would not devalue the peso and would maintain convertibility, but he also called for creating a "third currency" to stimulate the economy. Three days later, he had begun to talk about an "orderly exit" from the dollar-peso peg. Finance Secretary Rodolfo Frigeri said the government would print the third currency, the argentino, to be used to pay state salaries. It would be allowed to depreciate against the dollar, perhaps eventually replacing the peso. Meanwhile, banks and foreign-exchange houses were shut for most business for the fifth day running and ATMs ran out of cash. Skeptical Argentines feared the argentino would replace the peso altogether and uncontrolled printing of the new money would plunge them back into the hyperinflationary chaos of the 1980s. Demonstrators force another president to leave On Dec. 29, for the second time in as many weeks, thousands of middle-class Argentines filled the streets, throwing stones or banging pots. This time their anger was directed at Rodriguez Saa for continuing to restrict access to bank accounts and for appointing several high-ranking officials widely considered corrupt. Several demonstrators forced their way into Congress, setting small fires, smashing windows, and throwing furniture out the main entrance. Cabinet chief Carlos Grosso, a target of demonstrators, submitted his resignation. Grosso was widely suspected of corruption while serving as mayor of Buenos Aires. Seeking to shore up political support, Rodriguez Saa called PJ governors to a meeting on key issues including the March election. But only a handful of the governors offered their support. Some PJ leaders were reportedly worried that Rodriguez Saa was moving to extend his time in office. Seven days after he was sworn in, Rodriguez Saa announced his resignation in a nationally televised address Dec. 30 from his hometown of San Luis. He said he had little choice but to step down after he failed to win support for his caretaker administration, and he blamed several PJ members for putting their presidential ambitions ahead of solving the country's pressing problems. "The wolves and political lobbies running wild don't understand the spirit of the new times," he said, chastising PJ leaders. "They've asked me to do in seven days what hasn't been done in the last 30 years." "I am not going to be the president of the continuation of the old Argentina," he said. "I am not going to be a president who represses the people to support the positions of those in power, no matter how much I'm asked to." Rodriguez Saa's swift departure left the presidency in the hands of House majority leader Eduardo Camano. Ramon Puerta quit his post to avoid inheriting the presidency again. Once again, on Jan. 1, Congress met to accept a president's resignation and choose a successor. Legislators also suspended the March elections and said the interim president would govern until regular elections in 2003. "There is a total agreement in the legislature to choose a president for two years," said Federico Storani, head of the Union Civica Radical (UCR) in Buenos Aires province. "It would be madness in the present climate to hold an election." Eduardo Duhalde takes over Congress finally settled on Sen. Eduardo Duhalde, a 60-year-old former vice president and two-term governor of Buenos Aires province, as the next president. His selection was confirmed by 262 lawmakers, with 21 opposing and 18 abstentions. He assumed office Jan. 2. Almost immediately, the new president attacked the free market policies he blames for the current economic woes. "The financial crisis is without precedent," he said. "We have been left today without a peso. My commitment, starting today, is to do away with an exhausted economic model that has brought desperation to a vast majority...and to lay the foundations of a new model that can help our market recover and ensure a better distribution of wealth." As governor, Duhalde promoted public-works projects and defended local industry, but he ran up a budget deficit and faced accusations of corruption. One of his first promises on Jan. 2 was a new unemployment-benefit program. As part of the populist left wing of the PJ, critics say Duhalde is a throwback to old-fashioned Peronism, founded as a working-class movement by Juan Peron in the 1940s but transformed into a showcase for free-market reforms under Menem in the 1990s. Duhalde has yet to detail his policies for saving Argentina, but it is clear that his administration will no longer blindly support free-market economics nor be a slave to international banking and finance. On Jan. 4, Duhalde asked Congress for special powers to reform the economy, including devaluing the peso and creating a dual exchange rate. The bill he sent Congress requested powers to reform the banking system, regulate prices of goods and services, safeguard the value of savers' bank deposits, and protect debtors from bankruptcy. Duhalde's Treasury Secretary Oscar Lamberto said the new currency plan envisages a free-floating exchange rate system alongside an official fixed exchange rate to replace the peso-dollar peg. "The idea is that there would be two [currency] markets," said Lamberto. "An official market, established by the monetary authority...and a free market for nonpriority transactions in which the currency will fluctuate according to the market." But some analysts fear the dual system could lead to more of the endemic corruption that helped bankrupt Argentina in the first place. "The ambiguity between the two exchange rates opens the way for corruption and abuse," said Walter Molano, an analyst for US-based BCP Securities. As Congress debated the currency devaluation, it received more evidence of the enormity of the economic crisis with word that the budget deficit for 2001 would top US$11 billion. As late as November, Cavallo was predicting a deficit of US$7.8 billion, already well above the US$6.5 billion target agreed upon with the International Monetary Fund (IMF) last August in return for US$8 billion in emergency aid. On Jan. 6, both houses of Congress approved the emergency bill sought by Duhalde, clearing the way for the government to announce a devaluation. The president will be allowed to freeze prices on medicine and gasoline for the next two years if he believes that businesses are gouging consumers. He can reset the value of the peso against the dollar as often as he wants. The package also aims to ease the debt burden on the middle class by allowing up to US$100,000 in credit-card debt and consumer bank loans in dollars to be converted to pesos. Devaluation announced, but banks remain "on holiday" Late Jan. 6, overriding protests of foreign investors, Economy Minister Jorge Remes Lenicov announced that the dollar-peso peg was history. "We are devaluing, we are in collapse, Argentina is bankrupt," Remes Lenicov said. He said an official rate of 1.4 pesos per dollar would be applied to exports and imports, and a parallel, free-floating rate would be set by the marketplace and applied to most ordinary transactions. He said there could be a possible shift to a floating rate in four to five months. He also announced a two-day "banking holiday" on most financial transactions and said foreign-exchange markets would remain closed until Jan. 9. However, that holiday has been extended until at least Jan. 11. The government said it planned to start renegotiating its foreign debt with creditors in early February. Winners and losers Foreign banks and utility companies--mainly Spanish and US firms that moved into Argentina through the privatization of state assets in the 1990s--may be the big losers. "The poor have already made an effort and we are asking for the collaboration of the rich," Remes Lenicov said. The new measures have apparently been accepted by the Argentine public. No major protests have erupted, and people seem to have grudgingly recognized the Duhalde government. The US has made little public comment regarding Argentina's new economic measures other than to urge continued cooperation with the IMF. However, behind the scenes, sources in the IMF and those familiar with the US position said neither the US Treasury nor the IMF was pleased with Duhalde's economic plans. On Jan. 7, IMF managing director Horst Koehler said Argentina's problems were homegrown, but the IMF is ready to work with the country. An IMF technical mission is in Buenos Aires to look at the plans. IMF sources said that the dual exchange rate is not in line with IMF thinking, and the country may find it tough to win IMF support for the plan. IMF blamed for contributing to crisis Many analysts said the IMF must assume some of the responsibility for Argentina's woes. As the country slipped further into recession, the IMF's mandates did not change. It insisted on tightening the screws of fiscal austerity, calling for more budget cuts and more tax hikes, which in the end failed to do what they were supposed to do. Arturo Porzecanski, head of emerging markets at ABN-AMRO, said the IMF made the wrong diagnosis, and its prescription, which it refused to change, ended up killing the patient. Other analysts said the IMF is guilty of doing too little for Argentina, since the long-standing financial crisis became terminal after the IMF refused to disburse a US$1.3 billion loan in December. "The multilaterals have some responsibility in pushing Argentina over the edge and in building up this whole myth that is called Argentina," says economist Walter Molano with BCP Securities. "Argentina was their star student and was being sustained in that star position." Writing in the Los Angeles Times, author Marc Cooper said that, while Argentine mismanagement and corruption were partly to blame, the directors of the IMF, World Bank, and other multilateral financial agencies must share the blame. Argentina obeyed to the letter the dictates of the IMF. Even as default loomed, the IMF pumped billions of dollars more into Argentina in return for its obedience--and the economy still collapsed. Cooper said that experience should raise questions about the free-market globalization model that has increasingly been forced on Latin America countries. He cites a study released last summer by the Center for Economic and Policy Research in Washington showing that, of the world's 116 poorest countries, most are worse off after the last 20 years of global economic integration. In an article in The Boston Globe, American Prospect editor Robert Kuttner said that "as Argentina tanked, the IMF's austerity program pushed the economy further into collapse." He quoted Joseph E. Stiglitz, the 2001 Nobel laureate in economics and former chief economist of the World Bank, who said that the countries that have suffered most from globalization have been ones like Argentina that were coerced into leaving themselves vulnerable to forces beyond their control. "The international financial institutions," Stiglitz wrote, "have pushed a particular ideology--market fundamentalism--that is both bad economics and bad politics....The IMF has pushed these economics policies without a broader vision of society...and it has pushed those policies in ways that have undermined emerging democracies." [Sources: La Opinion (Los Angeles), 12/12/01; CNN, 12/21/01; Spanish news service EFE, 12/13/01, 12/21/01, 12/23/01; Los Angeles Times, 12/30/01; The New York Times, 12/17/01, 12/19/01, 12/22/01, 12/23/01, 01/01/02; The Wall Street Journal, 01/04/02; Notimex, 12/13/01, 12/20/01, 01/06/02; Reuters, 12/14/01, 12/19-23/01, 12/26/01, 12/29/01, 12/31/01, 01/02/02, 01/04/02, 01/06/02; Associated Press, 12/12/01, 12/14/01, 12/20-22/01, 12/27/01, 12/29/01, 12/31/01-01/02/02, 01/04/02, 01/05/02, 01/07/02; Inter Press Service, 12/14/01, 12/19/01, 01/04/02, 01/07/02; The Boston Globe, The Miami Herald, 01/07/02] ********************* CHILE ********************* CHILE: PRESIDENT RICARDO LAGOS NAMES WOMAN DEFENSE MINISTER IN NEW CABINET Chilean President Ricardo Lagos' Cabinet changes in the aftermath of recent legislative elections have left his economic team unchanged. The most notable appointment was Michelle Bachelet as minister of defense, the first time a woman has held that position. One of the most significant outcomes of the Dec. 16 elections was the dramatic rise of the far-right Union Democrata Independiente (UDI), which displaced the Democracia Cristiana (DC) as the largest party in Chile. The gains by the UDI, coupled with losses by the DC that could threaten Lagos' fragile Concertacion de Partidos por la Democracia coalition, made Cabinet changes imperative for Lagos to advance his legislative and political agenda (see NotiSur, 2001-12-21). In the elections, the governing Concertacion took 61 seats in the lower house, while the rightist Alianza por Chile, which includes the UDI and the Renovacion Nacional, took 56. In the new legislature, which begins March 11, the Concertacion will have 20 elected senators, plus three nonelected senators, while the Alianza will have 18 elected and four nonelected senators. The DC dropped three points, to 20% of the total vote, but lost 14 seats in the lower house. Other parties in the Concertacion, the Partido Socialista (PS), the Partido Radical Socialdemocrata (PRSD), and the Partido por la Democracia (PPD), all either maintained their share of the vote or increased it, which put the burden of the lost seats squarely on the DC. A major concern for the Lagos administration is the possibility that the DC could abandon the Concertacion. The possibility was confirmed Dec. 23 by former president Patricio Alywin (1990-1994), who heads the DC. The DC has been the principal party within the Concertacion since it was formed at the end of the military dictatorship, and the first two elected presidents following the end of military rule, Alywin and Eduardo Frei Ruiz Tagle (1994-2000), came from the DC. The new configuration in Congress will make it more difficult for Lagos to get his legislative agenda passed, especially those bills that touch the "vestiges of the dictatorship," such as the appointed senators and the relationship between the civilian government and the military. Those changes require approval by 72 deputies and 29 senators. Despite that reality, Lagos said after the elections that his legislative agenda had not changed. "The government has its agenda clear, it is clear in what is it going to do, and those who want to support us are welcome," said Lagos. "And those who want to continue with their confrontation, well I feel sorry for them." New Cabinet announced On Jan. 7, Lagos announced his new Cabinet and said he would "do everything possible to make things better" for Chileans. "The world has changed and Chile is also in a new place, which calls for more and better work." The new Cabinet maintains the same political balance as before, with six members of the DC, four from the PPD, three from the PS, two members of the PRSD, plus two independents. Only four ministers will leave the government, although several will change posts. The new Cabinet will include: - Interior: Jose Miguel Insulza - Foreign Relations: Maria Soledad Alvear - Secretary General of the Presidency: Mario Fernandez - Secretary General of Government: Heraldo Munoz - National Defense: Michelle Bachelet - Treasury: Nicolas Eyzaguirre - Economy: Jorge Rodriguez - Education: Mariana Aylwin - Justice: Jose Antonio Gomez - Health: Osvaldo Artaza - Agriculture: Jaime Campos - Labor: Ricardo Solari - Public Works, Transportation, and Telecommunications: Javier Etcheberry - Housing: Jaime Ravinet - Mining: Alfonso Dulanto - Planning and Cooperation: Cecilia Perez - National Service of Women: Adriana del Piano Bachelet makes history Bachelet was changed from minister of health to defense. She is a member of the PS and the daughter of air force Gen. Alberto Bachelet Martinez, who was arrested after the 1973 coup by Gen. Augusto Pinochet (1973-1990) that overthrew the democratically elected government of Salvador Allende (1970-1973). Gen. Bachelet died on March 12, 1974, in a Santiago prison. He was one of the highest-profile victims of the armed forces purge aimed at removing all officers and noncommissioned officers opposed to the coup. The 1991 Rettig Report said that Gen. Bachelet died "as a consequence of the torture and mistreatment suffered while he was in prison." Bachelet is the first woman defense minister in Chile or in Latin America, and she is the first socialist to hold the position since Orlando Letelier, who was defense minister under Allende and who was assassinated by the military regime's secret police in Washington, DC, in 1976. Bachelet, a pediatrician, said she grew up in a military family and understands well the military system. For two years, she was an advisor in the Defense Ministry. She said that she did not expect any opposition from the armed forces because she is a woman, and she said that all branches of the armed forces would accept her authority, thanks to the professionalization that has taken place since the restoration of democracy. With the exception of the navy, all branches of the armed forces have women officers and noncommissioned officers, including two female generals in the Carabineros militarized police. Naming a woman, a socialist, and the daughter of a general killed by the military regime to the defense post brought diverse comments within political circles in Chile. Most analysts said Lagos was sending a signal that civil-military relations in Chile have finally been completely normalized. Interior Minister Insulza said that Bachelet's appointment should be understood "as a demonstration that the country is reconciled." He said, "Besides her being a very competent person, her appointment should be seen as a sign that Chile can overcome the problems of the past." Former President Aylwin said the appointment "demonstrates that all sectors in Chile are able to overcome the wounds of the past, not only in the civil world but also in the military world." The conservative daily El Mercurio noted that Bachelet is on very good terms with army commander Gen. Ricardo Izurieta, as well as Gen. Juan Emilio Cheyre, who will replace Izurieta next March. "Within the air force there is no sense of surprise, and there will be no difficulty at all because the person designated is a woman," said air force commander Gen. Patricio Rios. At the ceremony welcoming the new Cabinet, Lagos said that the country is in an "exceptional period" politically and economically. He said that while the world "is going through difficulties," including a war and economic crisis, in Chile, "unemployment is down, the economy is growing, and democracy is solid." "What we have seen today is nothing more than an example of the exercise of democracy, where the president understands that at the end of one period he wants to begin with greater force to move forward into the next period." [Sources: Clarin (Argentina), 12/18/01; CNN, El Nuevo Herald (Miami), 01/07/02; Notimex, 12/18/01, 01/07/02, 01/08/02; Spanish news service EFE, 12/23/01, 12/26/01, 01/07/02, 01/08/02; Inter Press Service, 01/08/02] ================================================================= NY Transfer News Collective * A Service of Blythe Systems Since 1985 - Information for the Rest of Us 339 Lafayette St., New York, NY 10012 http://www.blythe.org e-mail: nyt@blythe.org ================================================================= pvtsa-01.12.02-00:03:59-18415