Argentina's Financial Roller Coaster

Country Threatened With Another Economic Slide Because of Internal Mistakes, World Crisis

BUENOS AIRES, Nov. 2 -- At 75, Juan D'Ambrosio has seen it all in Argentina -- a populist strongman and military juntas, economic collapse and a bright, if perhaps fleeting, revival.

Rakish in his black suit and slicked-back hair, he takes a break from a night of tango dancing to say he has also seen the current story before: a foreboding economic slide as Argentina is once more the victim of outside forces and its own series of familiar mistakes.

So he shakes his head, yet again, as the worldwide economic meltdown threatens to batter a country long marked by great promise but even greater disappointments. Memories of good times are fresh for many Argentines, who have yet to recognize bad omens, from tumbling stocks to a credit rating on par with Bolivia, the continent's poorest country.

With the government ill prepared for the swift drop in demand for Argentine products, President Cristina Fernández de Kirchner is trying to nationalize $25 billion in pensions in a plan many Argentines say is designed to provide a much-needed infusion of cash for her free-spending government. She says the takeover would save pensions from market forces. But the proposal has made matters worse, shaking markets and prompting Argentines who pay into private retirement funds to protest in the streets.

"It is what all the governments have done, increase public spending when they have the money, but now the money is short," explained D'Ambrosio, a retired bank worker who forgets his and Argentina's troubles by dancing the melancholic tango in the neighborhood dance hall. "Now they need the money, so we find ourselves in the same situation as before."

As the financial storm has spread, emerging markets from South Korea to South Africa to Brazil have faced falling demand for their products, an inability to tap financial markets, lagging economic confidence, sliding stocks and a run on deposits. Economists, though, say this sprawling country of 40 million people may be particularly exposed because its $95 billion default in 2001, the biggest in history, means Argentina is virtually locked out of credit markets while its export-driven economy fails to generate the earnings the country needs.

Argentina had been spending heavily, enjoying the windfall from a commodity boom that helped extricate the country from economic collapse six years ago and then provided the motor for an ambitious network of social programs. When the prices of soybeans and other mainstays in this agricultural powerhouse dropped by more than 40 percent in just weeks, the impact on Argentina's finances was immediate.

It has been a familiar theme in this country.

Populism and ideology have characterized governance since Juan Perón won power in 1946 and began wide-scale assistance to the working class. He so showered them with generous programs that some Argentines consider state aid and subsidies a birthright. But while the system delivered relative equality, it also encouraged Argentina to live beyond its means.

Now, the Kirchners -- first Néstor Kirchner, who won office in 2003, and his wife, who succeeded him last year -- have won a loyal following by expanding social programs while excoriating opponents as "oligarchs."

Daniel Artana, chief economist at the Latin American Economic Research Foundation in Buenos Aires, said the problem is that the Kirchners did not create a special windfall fund like neighboring Chile did during the commodity boom. Instead, the government spent the extra money, he said. Officials are now scrambling, looking for financing to pay nearly $30 billion in debt that comes due in the next three years.

"What looked before as an era of very high growth, now it can turn into an era of contraction in the economy and increasing unemployment," Artana said. "The economy grew a lot, but it was based on the assumption that commodity prices would be growing and growing forever. In a sense, it's like the subprime mess."