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By Brian Byrnes
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It's not necessarily about you. Global investors would do well to remember that as they watch the unfolding melodrama in Argentina. When quixotic President Nestor Kirchner fired his Finance minister, Roberto Lavagna, last week, the immediate fear from New York to Tokyo was that Kirchner was out to stick it to Argentina's international creditors once again. Poised and polyglot, Lavagna had put out the fires set by Kirchner in confrontations with the IMF and other creditors in the aftermath of Argentina's record $103 billion default in 2001. Now Kirchner, newly emboldened by an October victory in local elections, was replacing Lavagna with an unknown banker. Quite a way to thumb his nose at Wall Street.
This story line ignores a few salient points, however. Lavagna's successor, Felisa Miceli, is also his onetime protegee, and is said to share his policy views, if not his political muscle. True, she recently described herself as "a soldier for Kirchner," and as president of Banco de la Nacion, Argentina's largest, she earned a reputation as a team player. But she's an unlikely choice if Kirchner intends a radical shift in policy. In Buenos Aires, the firing is seen as a local row: Lavagna's political godfather is Kirchner's archrival Eduardo Duhalde, whose wing of the Peronist Party suffered defeat to Kirchner-backed candidates in October. This, in other words, was the moment to settle local scores.
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The implications are global, however. Argentina's default and defiance were followed by an economic boom, with GDP currently on track to grow by 8 percent for the second year running. Now, many candidates in the dozen upcoming presidential elections in Latin America are favorably comparing Argentina with Brazil, where Workers Party President Luiz Inacio Lula da Silva has played by international free-market rules, only to see growth slow to 2.5 percent this year. The lesson seems to be that recalcitrance pays.
The truth is different. Brazil's inflation rate is a stable 5 percent, and foreign investors are still confident. Meanwhile, foreign direct investment in Argentina, which hit $24 billion in 2000, will reach only about $4 billion this year. The much-vaunted economic recovery, driven mainly by high global commodity prices, needs new investment to continue. Inflation has already topped 10 percent, traditionally the point of no return for Latin American economies. For all his tough talk, Kirchner is struggling to find a way to pay some $9 billion falling due just to the IMF through 2007. Brazil, meanwhile, needs no help from the IMF, and is expected to speed up in 2006, while Argentina slows down. Further radical moves may not pay.
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