The charms of one of Latin America's most alluring cities are sufficient to attract Kiperszmid's customers. But the government's full-throated populism, and its debt default, has discouraged major corporations from putting down roots here. The past three years, annual foreign direct investment has averaged just $4.8 billion, well below the double-digit levels of the 1990s.
Beatrice Nofal, president of ProsperAr, a year-old government agency charged with boosting investment, concedes Argentina needs an image makeover to compete with more investor-friendly locales. "We're trying to rebuild the reputation of Argentina after the default. … We're working on that. It's a challenge," she says.
To its critics, the government's most glaring failure has been on inflation. With unemployment high and factory utilization low, the economy was able to grow fast in the immediate aftermath of the default without triggering price increases.
Now, however, prices are rising — by exactly how much is under dispute. The government's official statistics agency, INDEC, pegs inflation at about an 8% annual rate. But the government's handling of the supposedly non-partisan office — first seeking earlier this year to devise a new way to measure the consumer price index, then firing the agency head when he balked — has shredded its credibility. Independent estimates of the inflation rate range from 15% to 20%.
"The CPI released by INDEC is no longer reliable (and, as a result, other figures, including measures of economic activity, are now under suspicion)," Barclays Capital wrote in a recent note to investors.
Kirchner also prompted head-shaking last month by publicly demanding that banks lower interest rates. With prices in the fast-growing economy already rising uncomfortably quickly, making credit less expensive seemed exactly the wrong thing to do.
For their part, Argentine officials reject the conventional view that growth in the money supply determines an economy's inflation rate. Instead, they embrace the so-called structuralist view, which holds that inadequate supply of goods (rather than excess demand) lies behind inflation.
Rather than use interest rates as the chief inflation-fighting tool, they concentrate on promoting competition and boosting productive capacity. They also appear willing to live with double-digit inflation if the alternative is slowing the economy.
An economy in transition
As the grumbling grows in Argentina's financial community, some in the government insist that the country shouldn't be judged by the same criteria as fully developed economies such as the United States or European Union. Interest rates, for example, are less important here in determining economic growth because 90% of transactions are conducted in cash.
"This is still an economy in transition. … The plane has not reached its cruising altitude yet," says Martin Redrado, the governor of the central bank.
Officials say that extraordinary measures were needed beginning in 2002 to revive a near-dead economy. An activist state had to employ all sorts of powerful medicine — price controls, presidential jawboning, subsidies — to bend the market to its will. They recognize that, in the long run, Argentina can grow at an annual rate of 5%, not the better-than-8% rate of recent years.
Despite the mounting concerns, no one is predicting an early crisis. Both high inflation and energy shortages are regarded as stiff challenges that will test the new president's political dexterity and policy acumen — but not as disasters in the making.
In a few more years, perhaps as it marks a decade after the 2002 collapse, Argentina may even be ready to pursue more conventional policies. "Argentina is not yet a normal country," says Redrado. "We are trying very hard to be a normal country, (and) we are on the way."