Argentine President Eduardo Duhalde, clinging to power since January, is losing his grip on leadership, with a new plan of swapping citizens' banking accounts for government bonds perhaps being the move that will send him spiraling into political oblivion.
"I have a mandate from Congress. If Congress is not in agreement, they have to elect another president," Duhalde said Monday. He then pointed out to reporters that he didn't think anyone else would want to "take control of this ship in such a difficult situation."
The question critics have for Duhalde, though, is whether the captain will go down with his ship, or is the ship going down with its captain?
Argentina, Latin America's third-largest economy, has been mired in recession for four years. However, the past five months have seen the fevered pitch of the situation turned up an octave with the further hijacking of Argentines' bank accounts.
Banks and foreign exchange markets were shut down indefinitely since Monday as a run on banks continued to bleed the financial system dry. Government officials, seeking to calm clamoring citizens, say that the institutions will reopen once Duhalde's new banking plan passes Congress, which optimists say could be on Wednesday.
The plan -- labeled Bonex II -- seeks to convert a large part of banking accounts into long-term government bonds. The plan is similar to the original Bonex, a tremendously unpopular scheme implemented in the early 1990s.
Duhalde is also seeking a structural reorganization of the banking system, with unspecified adjustments in banking laws and the merging of many government-run banks. Argentine officials say they have been forced into the measures because the financial system simply has no cash.
The heart of the matter is that Duhalde can pull rabbits out of a hat all day long, but until he takes real steps to convince the International Monetary Fund to release at least $9 billion in aid, the country will be stranded in an economic no man's land.
This weekend saw top Argentine officials returning empty handed to Buenos Aires from meetings in Washington with the IMF and officials from the Group of Seven industrialized nations.
The IMF, with G-7 support, has made clear that drastic changes in Argentina must be seen before any new aid will arrive. Specifically, free-spending provincial governors have to be reined in by federal officials.
But it is also clear that Duhalde, a former governor of Buenos Aires province, cannot deliver this provincial discipline, and he will likely exit office because of it. Which, it seems, would not displease an IMF negotiating team that has nothing but time on its side and would be quite ready to negotiate with a new leader, though only polite comments are communicated to the press.
Horst Kohler, the IMF's managing director, told reporters Saturday that he had "a very good meeting, a very open, frank discussion" with Argentine Economy Minister Jorge Remes Lenicov. "I strongly reiterated to the Minister that the IMF is committed to conclude on a program -- there should be no doubt about that -- but, of course, that this conclusion needs to be built on a sustainable approach to the issues." Second verse, same as the first. The IMF has been telling Argentina this for months.
In a communiqué issued over the weekend, the IMF said "improved differentiation and risk assessments by markets have served to limit so far the contagion effects of the Argentine crisis."
True enough, but officials across Latin America are not feeling so confident that emerging economy investors will continue to act in such a benevolent manner.
"The confidence of investors in emerging market economies and in the region has failed to improve, or has done so only in a very limited fashion, partly because of the Argentinean crisis," said Chile's Minister of Finance Nicolas Eyzaguirre, speaking this weekend on behalf of six Southern Cone countries seeking aid for Argentina.
"The early restoration of credit and of the payments system is essential for beginning the process of recovery," Eyzaguirre continued in a written statement. "It would be appropriate for the Fund to take a more active role in seeking a solution to the
Argentinean problem and its ramifications."
With the exception of Uruguay, Latin American countries have been riding out the crisis in a relatively smooth manner. But as the situation drags on, and certainly if economic and political instability in Argentina grows, investor flight will increase. That absence of capital will come at a time when all economies on the continent are desperately clinging to the hopes of riding an economic upturn in the United States.
British Chancellor of the Exchequer Gordon Brown, in Washington for the G-7 meeting and speaking from that group's point of view, underscored the IMF's demands. "Reforms of the fiscal framework encompassing the provinces, establishing a monetary anchor, and improving the bankruptcy and economic subversion laws will all help to restore investment and growth," he told reporters in Washington.
Argentina wasn't supposed to be in this situation. In the early 1990s the country aggressively implemented free-market reforms and cash rained down from Wall Street heaven in the form of billions in loans for both the public and private sector. The now demonized one-to-one peg with the dollar was implemented -- and hailed by foreign investors -- during this time.
But systematic flaws -- excessive government spending, a bloated bureaucracy, the buying of political success with expensive public works -- remained and have come back to haunt the country.
IMF officials, influenced by the Bush Administration's idea of wanting sound policies in place before sending aid to emerging economies, remain firm with what was once its darling Latin American example.
But one must wonder how much the IMF and other lenders are willing to let pass before stepping in with aid. More fatal clashes between protesters and police? Duhalde's exit, voluntary or not? A military takeover? The latter is certainly not out of the realm of possibility on a continent that just witnessed a temporary coup in Venezuela, largely sparked by the country's business elite and its displeasure with President Hugo Chavez's handling of the economy.
Duhalde is in an impossible position and the only way out likely means his giving up power, either by resignation or by calling for new elections, which are now scheduled for 2003. But he remains defiant, saying it would be "irresponsible" to step down now, despite a growing chorus of critics calling for his exit.
But if the collective ire of protesters fires up as it did last December, Duhalde will not be given the choice as to whether he can act in this "responsible" manner or not. He will just be the next in a long line of presidents pushed out as they waited for the IMF to give in and deliver aid.
