ARGENTINA'S MIRAGE
Dec. 26, 2007

EDITORS -- Alvaro Vargas Llosa is taking a one-week vacation. His next column will be filed Tuesday, January 8, 2008, for release Wednesday, January 9, 2008. For a replacement column, e-mail the Writers Group at wpwgsales(at)washpost.com or call 800-879-9794, ext. 1.

WASHINGTON -- Cristina Fernandez recently took office as Argentina's president. Until a few weeks ago, she was the country's first lady. The big difference, of course, does not reside so much in the fact that her former status was ceremonial and dependent on her husband, Nestor Kirchner, as in the fact that she will need to reverse most of his populist policies if she wants to succeed.

She is unlikely to do so. A recent scandal has reminded everyone in Argentina that the Kirchner couple is a firm political partnership. Assistant U.S. Attorney Thomas Mulvihill, who is dealing with a case involving three Venezuelan spies, disclosed in Miami that a bag containing $800,000 seized at the Buenos Aires airport a few months ago was sent by Venezuelan President Hugo Chavez's government to fund Fernandez's campaign. Kirchner was a close ally of Chavez and sold billions of dollars worth of sovereign bonds to the Venezuelan government. Fernandez has rejected Mulvihill's accusation and reiterated her support for Chavez.

The Kirchners have benefited from an economic growth that is quite artificial. First came the huge devaluation of the peso in 2002, which made tourism and exports very cheap. Then came the high prices of Argentina's cereals and fuels, which Kirchner taxed in order to boost government spending. And then private creditors were told they would not receive more than 25 percent of what the government owed them.

The combination of these factors helped generate annual GDP growth rates of about 8 percent since 2003. Many Argentines have mistaken this bounce for genuine prosperity.

The truth is that there is scant private investment in Argentina and inflation is rising fast. Although the Kirchners have tried to conceal the inflation figures by bringing into the equation a number of products whose prices are officially controlled, most people in Argentina think the rate is above 20 percent. As if that were not enough, the country has gone from one energy crisis to another: The nation's abundant energy resources cannot satisfy rising demand because Kirchner's government kept prices frozen at one-third of market value and investors ceased putting their money in natural gas. Foreign direct investment has dropped by about 30 percent in the last three years.

In classic populist fashion, the presidential couple over four years raised public spending by 200 percent and wages by 40 percent, keeping interest rates below market levels, controlling prices and creating state enterprises. All of this has put more money in people's pockets, but sooner or later Argentines will pay a price. Those who voted against Fernandez in the main urban centers (Buenos Aires, Cordoba, Santa Fe and others) probably sense what is coming.

Following a long Peronist tradition, the Kirchners have concentrated unhealthy amounts of power in their hands -- part of the reason why Fernandez won the recent presidential election so easily. They have changed the structure of the Magistrate Council, thereby taking control of the judiciary. They also control the political apparatus of Buenos Aires province, which accounts for a very large chunk of the national vote. Fernandez is now intending to establish a corporatist model by which economic and social laws will be negotiated with groups that supposedly represent civil society, but are really part of the Peronist clientele.

Women have had a tremendous impact on Latin American politics of late. Fernandez's rise to power comes relatively soon after Michelle Bachelet was elected president of Chile. This tendency has been correctly interpreted as a sign that a significant part of the continent is coming to terms with the need for politics to transcend gender. However, unlike Chile, a country that limits the power of its presidents, Fernandez's Argentina is heavily dependent on presidential politics. This means that Fernandez will have more power than Bachelet -- and a much greater tendency to erode democracy and engage in economic populism.

Ironically, the only way for Fernandez to live up to the expectations she has generated is to perform an act of matrimonial cruelty, shedding her husband's legacy and shifting course dramatically.