Argentina's Annoying New Friend

A potential economic alliance with Venezuela could foment a crisis for Latin American democracy.
By Nancy Soderberg
NANCY SODERBERG, a former U.S. ambassador to the United Nations, is the author of "The Superpower Myth: The Use and Misuse of American Might."

September 6, 2006

WHILE THE Middle East smolders, another crisis is brewing to our south. Slow economic growth, worsening inequality, lack of social services and weak legal systems have eroded confidence in elected governments. A 2004 United Nations Development Program poll indicates disturbing trends in Latin Americans' views toward democracy: 55% said they would support a dictatorship if it could produce economic benefits, and 58% agreed that leaders should "go beyond the law" if necessary. Skepticism of elections is high. Since 2000, four elected presidents in the region have been forced to step down.

Venezuelan President Hugo Chavez is using his oil wealth to play to this frustration and spread his populist anti-Americanism throughout the hemisphere. And he's buying influence. He has funded samba schools in Brazil, lavished trade deals on neighbors and purchased $25 million in Ecuadorean debt. At a July economic summit, Venezuela joined the once-staid South American trading bloc called Mercosur. Its leaders lauded the attendance of Fidel Castro and signed a trade agreement with Cuba. Chavez is now trying to line up the developing world's support for his bid for a seat on the U.N. Security Council.

Particularly troublesome is his budding alliance with Argentina's president, Nestor Kirchner. It is one thing for Chavez to cozy up to Castro as a way to torment Washington. His alliance with Argentina is much more worrisome. Argentina, a significant political and economic player, is veering in the wrong direction and in the wrong company.

Last year, Chavez lent Kirchner's cash-strapped government close to $3 billion, enabling it to pay off Argentina's International Monetary Fund debt. Now, in a warped version of 19th century liberation hero Simon Bolivar's dream to free the hemisphere from foreign domination, Chavez and Kirchner want to create a regional competitor to the IMF. Chavez plans to use the institution to spread his populist ideas, including debt repudiation and appropriation of foreign assets. Venezuela has also sought nuclear energy technology from Argentina, which recently announced an eight-year, $3.5-billion expansion of its nuclear energy program, under which it may resume mining uranium.

Argentina made headlines in 2001 when its economy collapsed, prompting huge popular protests that ousted four presidents in a single week. Kirchner took over the presidency in 2003 with just over 20% support. His popularity is now at 70%, in part because he has played hardball with the international financial community, including threatening to default on the country's $80-billion debt. In January 2005, Argentina offered its creditors a bad take-it-or-leaveit deal: 30 cents per dollar owed. After two years of 9% economic growth, Argentina is on the road to recovery, and it is time for the country to make good on its international debts.

The issue is far broader than disgruntled investors, Argentina's particular interests or even the U.S. need to send Kirchner and Chavez a tough message. The integrity of the international credit markets is at stake. Certainly, the IMF has made mistakes. But the international community must deal with defaults in a manner that reaches an equitable deal at acceptable costs to both investors and defaulting nations. At the heart of a democratic Latin America must be an agreement to play by the rules. Argentina is not playing fair.

It's worrisome that many Latin Americans seem to be looking for strong leaders who will make the trains run on time — even if they have to break the rules to do so. That's a dangerous brand of populism because leaders who are willing to flout international norms are also likely to trample over domestic rules.

The Bush administration should press for a negotiated settlement with Argentina, but it also must make it clear that the patience of the international community is not limitless. The IMF should hold up future loans to Argentina if it fails to negotiate in good faith. And, absent an improvement in Argentina's actions, the United States should consider whether such a wealthy country deserves the special trade benefits that will come up for renewal at the end of the year. Kirchner must understand that any alliance with Chavez will be costly. The new Argentina-Venezuela axis should serve as a wake-up call to President Bush. Democracy is at risk in Latin America.