MercoPress. South Atlantic News Agency

Kirchner's “obstinacy” as described by Financial Times

Under the title of “Argentine obstinacy”, the Financial Times October 23 edition publishes a scathing editorial on President Nestor Kirchner who is “on his way towards throwing away a historic opportunity” to a long term transformation of the country's economic prospects.

The Financial Times praises President Kirchner's leadership capacities but questions some of his policies "reminiscent of the interventionist populism common in the seventies and eighties" but now discredited almost everywhere.

"Present rates of expansion are unsustainable, particularly under current policies" and if international conditions were to turn against Argentina, "Mr Kirchner would find investors less forgiving than they have been so far".

The editorial follows: Not since the beginning of the 20th century has Argentina had it quite so good. High prices for its agricultural and mining exports, buoyant demand from China and a competitive currency are boosting exports. The country is also set to record another current account surplus this year.

These are, in short, exactly the conditions in which a more intelligent and far-sighted leader would begin the long-term transformation of Argentina's economic prospects. Unfortunately Néstor Kirchner, the centre-left president, is already on his way towards throwing away a historic opportunity.

True, Mr Kirchner has drawn more benefits from last year's debt restructuring deal than many critics predicted at the time. The Argentine leader has, for example, sustained fiscal stability, consistently recording primary surpluses. In other respects, however, Argentine economic policy has become worryingly reminiscent of the interventionist populism common in the 1970s and 1980s, but now discredited almost everywhere.

Public sector involvement in the airline, railways and water industry may not always be a bad thing. But the interventions have been badly handled and there is some evidence that services have deteriorated.

Price controls, which are to be extended until the end of 2007, are another reminder of the dismal past. They are merely masking the inflationary pressure: prices of a narrow basket of consumer goods may be falling below 10 per cent, but on a wider measure inflation is already nearer 14 per cent a year. Worse, the government has introduced these controls arbitrarily. It has, for example, refused permission for utility and financial service companies to increase their rates. These interventions distort market incentives, misallocate resources and inject a strong element of unpredictability into the country's business life.

On paper, the country's investment codes are still among the most liberal in the world. In practice, however, the nature and intensity of government intervention will deter potential inflows of capital. At worst, they will lead some existing businesses to move elsewhere.

None of this may matter much to Mr Kirchner, since his country's economy has been growing at an annual rate of more than 8 per cent since 2003. Mr Kirchner's no-nonsense approach to the private sector also goes down well with the Argentine public, as his opinion poll standings testify.

Yet present rates of expansion are unsustainable, particularly under current policies. If international conditions were to turn against Argentina, Mr Kirchner would find investors less forgiving than they have been so far. It would cost Mr Kirchner little to eschew discretionary intervention and adopt a more market-friendly approach to the private sector. He should change tack while he still has time to do so.