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E.O. 12958: N/A 
TAGS: ECON EFIN PREL PGOV AR
SUBJECT: Argentina: Opposition Candidates' Economic Platforms 
 
Ref:    (A) Buenos Aires 2021 
 
        (B) Buenos Aires 2015 
        (C) Buenos Aires 1995 
 
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Summary 
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¶1. (SBU) Substantive policy debate about clouds gathering on 
Argentina's economic horizon has been largely absent from the 
presidential election campaign here.  An exception has been 
high-profile sniping by principal opposition candidates Roberto 
Lavagna and Elisa Carrio at GoA mis-steps in its alleged efforts to 
manipulate inflation statistics.  Former Economy Minister Lavagna, 
the architect of the GoA's current economic policy mix, supports the 
main tenets of the GoA's economic model but argues it should 
"evolve" to meet domestic and external market challenges.  Lavagna 
has limited his economic policy critique to the GoA's inefficient 
price control regime, the President's use of non-transparent 
"superpower" budget authority, and the government's hollowing out of 
key Argentine economic institutions.  Surprisingly, Carrio, the most 
leftist major candidate (besides, arguably, frontrunner Cristina 
Kirchner), has articulated the most orthodox economic policy 
platform, emphasizing a central bank focused on inflation 
management, a more flexible exchange rate regime, and a progressive 
income redistribution bias via tax reform.  Less popular candidates 
Rodriquez Saa, Lopez Murphy, and Sobisch have similarly echoed more 
orthodox economic prescriptions and hammered on inflation. 
End Summary. 
 
--------------------------------------------- -- 
Lavagna: Former Economy Minister's Bully Pulpit 
--------------------------------------------- -- 
 
¶2. (SBU) If any one person can claim to be the architect of 
Argentina's economic recovery, it is Roberto Lavagna, who was 
Economy Minister from 2002 until November 2005.  In his election 
campaign, Lavagna has not been shy about making this point. 
Responding sardonically to claims by President Kirchner's allies 
that the president is the real economic helmsman, Lavagna observed 
that "there is a tendency to put on the medals won by others, from 
human rights to the economic recovery."  In recent weeks, Lavagna 
has increasingly focused his attacks on inflation and the GoA's 
apparent manipulation of statistics. 
 
¶3. (SBU) In Lavagna's view, the Kirchner government is squandering 
the economic legacy he left in 2005 by imposing "a rigid system of 
price controls" and resuming ownership of some formerly state-run 
companies privatized in the 1990's.  Lavagna has also been critical 
of the President's misuse of "superpower" budget authority to allow 
him to alter budget expenditures and issue "decrees of necessity and 
urgency" without seeking congressional approval.  In an August 2007 
AmCham luncheon attended by the Ambassador and EconCouns, he decried 
the Kirchner administration's "systematic hollowing out" of key 
economic institutions, including statistical agency INDEC (Ref A), 
competition policy agency CNDC, agricultural marketing agency ONCCA, 
and the GoA's financial investigation unit UIF.  On regional trade 
policy, Lavagna has been critical of what he calls president 
Kirchner's "turn to the left" in his alliance with Venezuelan 
President Chavez.  As Lavagna sees it, Chavez is trying to hijack 
Mercosur's trade promoting customs union and economic integration 
priorities and turn Mercosur into a regional anti-American political 
alliance. 
 
¶4. (SBU) Lavagna's resignation from the Kirchner administration in 
November, 2005 followed his warning that government contracts and 
control of state companies were being steered to President 
Kirchner's political allies based on records of loyalty rather than 
competence.  During the August 2007 AmCham lunch, Lavagna recalled a 
conversation he once had with another senior official while still a 
member of the Kirchner government.  The official told him that the 
only two ways of dealing with Mr. Kirchner were "to be either a 
slave or an enemy, and I've chosen to be a slave." That option, Mr. 
Lavagna added, "is not for me." 
 
----------------------------------------- 
Lavagna's Contradictory Economic Platform 
----------------------------------------- 
 
¶5. (SBU) In June 2007, Lavagna was the first of a group of early 
presidential candidates to publish an outline of his economic 
platform in major Argentine dailies.  Key components include: (1) 
Maintaining a total and primary fiscal surplus with the goal of 
substantially reducing the GoA's debt overhang; (2) maintaining a 
"competitive" (i.e. undervalued) peso exchange rate; (3) eliminating 
price controls; (4) combating inflation via responsible fiscal 
policies; (5) stimulating and expanding domestic demand/consumption 
via a "virtuous circle" of increased salaries, pension payments and 
investment, the latter via targeted tax incentives; and (6) using 
appropriate banking sector and capital market policies to maintain 
low interest rates.  He has argued that any macro and micro policy 
prescription needs to evolve to meet domestic challenges and 
exogenous shocks, calling the GoA's "if-it-ain't-broke-don't-fix-it" 
economic policy philosophy an "ostrich" approach to economic 
management. 
 
¶6. (SBU) Clearly, Lavagna's economic platform is many steps removed 
from liberal free-market orthodoxy.  Local analysts argue that many 
of his proposals are contradictory or mutually exclusive.  Most 
commonly cited are his calls to combat inflation via "responsible" 
fiscal policies while continuing to stimulate already overheated 
domestic consumption via higher salaries, cutting taxes to encourage 
investment, and maintaining low (currently net real negative) 
interest rates.  Critics also note that, despite Lavagna's calls for 
fiscal probity, his record is that of a spendthrift.  During the 
2002-2005 period that Lavagna served as Economy Minister, public 
expenditures jumped over 100%, from approximately Pesos 53 to 107 
billion. 
 
¶7.  While Lavagna has been the primary voice in defining and 
defending his economic platform, he has been accompanied by Javier 
Gonzalez Fraga, former central bank governor from 1989-1991 under 
the Menem administration.  Currently a professor at Buenos Aires 
prestigious Catholic university, Fraga has made a number of public 
statements regretting the GoA's "debasement" of statistical agency 
INDEC. 
 
--------------------------------------------- --- 
Carrio's Surprisingly Orthodox Economic Platform 
--------------------------------------------- --- 
 
¶8. (SBU) Center-left candidate Elisa Carrio is widely seen as the 
front-runner for second place in the October 28 elections.  An 
outspoken political figure, Carrio says she would return Argentina 
to its republican roots, "democratizing" power and limiting 
presidential mandates to one term.  She argues it is possible to 
simultaneously enjoy a "republic, economic development, and social 
justice" and that her first priorities as president would be to 
lower inflation, fight Argentina's escalating drug problem, and 
establish better social programs for youths.  At a September 28 
lunch attended by the Ambassador, Carrio criticized the cost and 
ineffectiveness of school nutrition programs and proposed to use 
that money instead for direct payments to families to feed their 
children and keep them in school.  She also promised guaranteed 
pensions for the elderly. 
 
¶9. (SBU) Carrio's campaign gained considerable credibility when she 
brought former Central Bank governor (2002-2004) Alfonso Prat-Gay 
onto her team as her shadow Economy Minster.  Prat-Gay was appointed 
President of the Argentine Central Bank in December 2002, during the 
Duhalde administration.  The Kirchner administration's decision not 
to renew Prat-Gay's appointment in 2004 was reportedly related to 
his conflicts with then-Minister of Economy Lavagna and his 
criticism of the GoA's handling of IMF negotiations and debt 
restructuring with private creditors. 
 
¶10. (SBU) In September 2007, Carrio's Civic Coalition party 
published a "Productivity Plan: 2007-2011" which included mandates 
for (1) a wholly independent central bank conducting a monetary 
policy focused on controlling inflation; (2) contra-cyclic fiscal 
policy with the creation of contra-cyclic trust funds on the Chilean 
model; (3) a commitment to maintain a true primary fiscal surplus in 
the 1% to 4% of GDP range; (4) a more flexible exchange rate regime 
to more readily accommodate exogenous shocks; and (5) a progressive 
income redistribution bias via tax reform, including a lowering of 
VAT taxes and an extension of income taxes to financial assets. 
Interestingly, Carrio's economic platform does not specifically 
reject government price controls, but rather asks for substantive 
product- and sector-specific impact analyses of controls. 
 
¶11. (SBU) Like Lavagna, Carrio and Prat Guy have repeatedly and 
loudly charged that the GoA has manipulated inflation statistics and 
damaged both the credibility of INDEC and the Argentine state in the 
eyes of domestic and foreign investors.  When current Central Bank 
governor Martin Redrado said to an investor group in London last 
month that he is "preoccupied" by Argentine inflation levels, 
Prat-Gay retorted: "Better the central bank should be 'occupied' 
(dealing) with inflation rather than simply 'preoccupied' by it." 
 
¶12. (SBU) Given Carrio's left-of-center political base, many of her 
public statements on economic policy have focused less on the Civic 
Coalition's relatively conservative published economic platform and 
more on economic themes with a populist twist: despite significant 
declines in poverty and indigence levels, Carrio has criticized the 
GOA for a regressive tax system that, in an inflationary 
environment, has contributed to growing income inequality.  And, 
while demanding clear rules of the regulatory and incentive game for 
domestic and foreign investors, Carrio asks for ongoing oversight of 
private sector players to combat their the private sector's 
"tendency"  to monopolistic abuses of market power. 
 
---------------------------------- 
Other Candidate Economic Platforms 
---------------------------------- 
 
¶13. (SBU) Alberto Rodrguez Saa, a Peronist leader and current 
governor of San Luis province, is running in fourth place for the 
Presidency, according to most polls.  His brother Rodolfo Rodriguez 
Saa also served as governor of San Luis and briefly as President of 
Argentina for one-week in December 2001 following De la Rua's 
resignation, where he gained international notoriety for declaring 
Argentina's debt default in Congress.  Alberto Rodriguez Saa's 
economic platform highlights initiatives to re-work Argentina's 
"co-participation" federal revenue sharing regime to increase the 
share of government revenues automatically passed to provinces; the 
need to restrict Presidential "superpowers" and linked decrees of 
"necessity and urgency," and more broadly, the need to reduce overt 
government intervention in the productive economy, particularly in 
the agricultural and cattle sectors. 
 
¶14. (SBU) Ricardo Lopez Murphy, the center-right candidate currently 
running in fifth place according to most polls, previously ran for 
the presidency in 2003, where he came in third place with 18% of the 
votes.  Today, however, he is running at less than 5% in the polls. 
Lopez Murphy served as Minister of Defense and of Economy in the 
1999-2001 de la Rua administration, though his tenure as Economy 
Minister lasted only two weeks: after attempting to introduce a 
fiscal tightening program, popular protests ended in his 
resignation.  An economist with a PhD from Chicago University, his 
economic platform reflects an orthodox monetary approach to cooling 
down an over-heated Argentine economy.  Lopez Murphy's public 
comments on economic policy have decried GoA manipulation of 
inflation statistics; encouraged market-based competition within a 
transparent and consistent regulatory framework; called for a 
reduction in "politicized" state infrastructure expenditures in 
favor of more efficient private sector investment; proposed the 
development of incentive programs to encourage Argentine software 
and high-tech companies to undertake in-country R&D, and recommended 
the development of non-conventional energy sources to address 
looming electricity and natural gas shortages. 
 
¶15. (SBU) Finally, center-right leader and current governor of 
Neuquen province Jorge Sobisch is running a distant sixth place for 
the Presidency, according to most polls.  Sobisch's governorship 
ends in December 2007; in April 2007, after sending in police to 
manage a teacher's union strike, he was blamed for the shooting 
death of a Neuquen teacher.  Despite popular calls for his 
resignation, he vowed to finish his term as governor.  Sobisch's 
economic platform calls for a reform of Argentina's co-participation 
revenue sharing regime and a linked simplification of Argentina's 
complex the tax structure which concentrates revenue -- and power -- 
at the federal level.  He has also called for more "balanced" 
Argentine economic development, with a focus on Argentina's 
productive provincial regions. 
 
------- 
Comment 
------- 
 
¶16. (SBU) GoA mis-steps in its attempts to manage inflation via 
price controls and - allegedly - to manipulate inflation statistics 
have become prime fodder for opposition candidates.  Otherwise, the 
final weeks of Argentina's presidential campaign have been bereft of 
substantive debate on economic themes.  It appears that five 
consecutive years of 8+% post-crisis GDP growth, topped off by a 
pre-election "pinata" of salary and pension increases, tax breaks, 
industrial protection measures and public works commitments have 
encouraged Argentine voters to accept GoA promises of continued 
growth and increases in real income in a follow-on Cristina 
Fernandez de Kirchner administration. 
 
¶17. (SBU) It is one of the ironies of this Argentine electoral 
campaign that Elisa Carrio, the first-tier candidate farthest to the 
left on the political spectrum, is running on the most "orthodox" 
economic platform, one that calls for measures to cool down 
Argentina's overheated consumer demand.  In contrast, Roberto 
Lavagna, architect of all the key aspects of the GoA's current macro 
policy mix, is calling for an "evolutionary" economic policy that 
adapts to domestic and international market realities.  But other 
than promising an end to price controls and damning the GoA's poor 
implementation of "his" economic model, Lavagna has consistently 
validated current GoA macro policies -- policies that many argue 
have led, inexorably, to the very inflationary pressures and related 
disequilibria that cast a shadow over Argentina's current economic 
boom. 
 
WAYNE