Crisis of Confidence

By Kenneth W. Banta

As the military prepares to bow out, bankruptcy menaces a dispirited nation

Just before he left the annual meeting of the International Monetary Fund in Washington last week, Argentine Central Bank President Julio Gonzalez del Solar declared that his efforts to refinance his country's $40 billion foreign debt had gone remarkably smoothly. "There is no nervousness," he said. "Basically there is confidence."

Gonzalez del Solar spoke too soon. Three days later, as the Harvard-trained official stepped off the Pan Am flight that had brought him back to Buenos Aires, three security men accosted him and abruptly hustled him off to a waiting car. They took Gonzalez del Solar to the headquarters of the mounted police, where they held him incommunicado overnight before flying him 1,700 miles south to the federal penitentiary in the desolate Patagonian town of Rio Gallegos. The reason: an obscure, nationalistic federal judge had summoned Gonzalez del Solar, whose position is roughly comparable to that of U.S. Federal Reserve Chairman Paul Volcker, to investigate "supposed violations of sovereignty" for accepting a routine clause that gives an American court jurisdiction in any dispute over loans to Argentina signed in the U.S. With those Keystone Kops antics, Judge Federico Pinto Kramer pushed Argentina to the brink of international default. Foreign banks immediately suspended all payments of new loans to Argentina, raising fears of a collapse that could set off a global chain reaction.

The crisis could hardly have struck at a worse moment. Argentines were in the midst of an election campaign that holds the promise of ending 7 1/2 years of incompetent and sometimes murderous military rule. Still humiliated by last year's defeat by Britain in the Falkland Islands and burdened by triple-digit inflation and 15% unemployment, the military government of President Reynaldo Bignone was rapidly losing what little control it still had. As if to underscore the government's impotence, the country's two largest labor unions called a 24-hour national strike that shut down virtually all factories and public services. The prevailing attitude, warned the Buenos Aires newspaper La Nacion, "is something like collective suicide, as if the will to be a nation has been crushed." The situation became so precarious, indeed, that some Argentines wondered if the election scheduled for Oct. 30 would even take place.

The country's close encounter with insolvency began when a lawyer in Rio Gallegos formally objected to a standard clause in a debt agreement between the national airline, Aerolineas Argentinas, and U.S. creditor banks. The provision stipulates that any litigation can take place in the Federal Court of the Southern District of New York as well as in Argentina. Judge Pinto Kramer agreed that the clause probably violated Argentine sovereignty. Using the broad powers that federal judges in Argentina enjoy, Pinto Kramer decreed a freeze on all loan negotiations, then ordered the arrest of Gonzalez del Solar.

Instead of using his influence to rescind the orders, President Bignone allowed the legalisms to follow their course. He may have had little choice. Pinto Kramer, according to officials close to the leadership, was abetting top air force generals. Their apparent motive: to cause a financial panic that would force postponement or cancellation of the elections.

With the flow of new loans cut off, foreign currency reserves fell sharply, prompting the central bank to suspend all withdrawals of foreign exchange. Within hours, lines formed in front of many of Buenos Aires' major banks as Argentines tried to withdraw dollars and even jewelry for fear that the government would seize their deposits.

In the midst of that debacle, the country was shut down by the general strike, which had been called by the two General Confederations of Labor, umbrella union organizations that are dominated by Peronists. At dawn, when supply trucks are normally bustling through the center of Buenos Aires, the streets looked like a scene from the film On the Beach. The railroad stations that are usually teeming with commuters seemed like vast caverns, and airports were closed to all but military traffic. Shops, offices, cinemas and most restaurants were shuttered. In the industrial belt, factories lay idle. By the union's estimate, some 8 million people took part in the strike. The protest ostensibly was a demand for higher wages to compensate for Argentina's runaway inflation, which reached an annual rate of 571% in August. In fact, it was a show of the unions' muscle before the elections, and a broadly based expression of outrage with Argentina's fumbling military leaders.

Belatedly, Bignone tried to defuse the explosive situation. After an appeals court acted on the government's request that the case against the central bank president be dropped, Gonzalez del Solar was freed and flown back to Buenos Aires aboard the President's personal F-27 jet. Bignone meanwhile had gone on national TV to reassure citizens. Gonzalez del Solar's imprisonment and the looming default, he said, were "inconveniences everyone knows about."

That did nothing to restore the flow of interest payments from Argentina to banks in the U.S., Europe and Japan. Lamely, the military leaders could only announce that Argentina believed its international commitments "should be respected and fulfilled." They promised that the elections would take place on schedule, but even that reassurance was undermined by vague accusations that unnamed conspirators plotting to plunge the nation "into insecurity and anxiety" were threatening the vote. Aware of the virulent nationalism permeating Argentina, both the Peronist and Radical parties also agreed that the debts should be paid, but called for a full investigation of the terms of the loan agreements.

In the pervasive mood of exhaustion, Argentines have pinned their remaining hopes on the new civilian government, which is scheduled to take office in January. The record is not promising. Peronist domination of Argentine politics has given voters no real choice in nearly four decades, and since 1952 the military has not allowed a single elected government to complete its term. Now, however, the Peronists face a genuine challenge from the centrist Radical party. Moreover, both parties have leaders who are equipped with refreshingly moderate agendas.

Until recently, moderation has not been a feature of Peronism. Since its founding in 1946 under Dictator Juan Peron, the Peronist party has had one overriding goal: to keep the Peron family in power. With close ties to the military and the devoted support of a vast poor and working-class constituency, the strongly nationalistic party swept every election it was free to enter. The usual pattern of Peronist politics came to an end in September, however, when centrist delegates to the national convention overwhelmed old-line union bosses. The convention nominated Italo Luder, 66, a low-key former law professor and accomplished political infighter, as the party's new leader. His selection came after traditionalists failed to engineer the return of Isabel Martinez de Peron, the dictator's widow, to lead the party. She remains in Spain, where she fled after a brief and tumultuous term as Argentine President.

Luder's plain-spoken style has impressed his countrymen, who were weary of the party's posturing leaders of the past. But while the Peronists were feuding, the Radicals, under their backslapping leader Raul Alfonsin, 56, were campaigning successfully among the urban middle class. Calling for a government modeled on West European social democratic lines while strongly opposing the military junta, Alfonsin has won converts among the working class, the Peronist stronghold. He has also found support among the 5 million youths who will be voting for the first time.

Notably absent from the heated campaign is any significant difference on substance. Both candidates are preoccupied with repudiating the actions of the discredited military regime. One particularly emotional issue is the "dirty war" of the 1970s, when at least 6,000 opponents of the government disappeared, apparently killed by members of the armed forces. With an eye to the scheduled transition to civilian rule, the military last month enacted a law that in effect pardoned itself for the atrocities. Both Luder and Alfonsin have promised to repeal the law, whose constitutionality is in any event dubious. Says Alfonsin: "We will restore the rule of law, so that never again will a man have to kneel before another man."

As the nation attempts to recover from the latest blows to its economy and its pride, the importance of the election lies not so much in the political contest as in the opportunity it presents to consign the failures of the past to history. Explains a leading civil rights activist: "This is Argentina's last chance to join the 20th century before the rest of the world moves off into the 21st century."

--By Kenneth W. Banta. Reported by Gavin Scott/Buenos Aires

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