The Washington Diplomat / April 2002
By Larry Luxner
Argentina is living through the worst economic and political chaos in its history, and the country's new ambassador to the United States, Diego Ramón Guelar, wants to talk about cows.
"This is Valentina," Guelar says with a grin, showing off a stuffed heifer wrapped in yellow USDA quarantine ribbon. "It's a clone of the one I gave President Bush on Feb. 14, the day I presented my credentials. Of course, I couldn't bring with me a real Valentina because of foot-and-mouth disease."
To say Guelar has a sense of humor would be an understatement. On the day The Washington Diplomat arrived to interview him, jokes and gags seemed to abound in his office, which boasts three stuffed Valentinas -- complete with their own mooing and other farm-like sound effects.
When he finally got serious, however, Guelar pulled no punches about the disaster facing Argentina, once among the 10 wealthiest nations on Earth.
"It's a disgrace, a tragedy," said the 52-year-old diplomat, who was born and raised in Buenos Aires. "How do you explain that such a rich country with a highly educated population is in such a terrible crisis? It was far easier for me to be ambassador in 1997, 1998 and 1999 than it is to be ambassador in 2002."
Indeed, the last time Guelar was Argentina's envoy to the United States, the two countries were enjoying a honeymoon of sorts. His first official act upon arriving in Washington in August 1997 -- even before presenting his credentials to President Clinton -- was to sample the first shipment of USDA-certified fresh Argentine beef to the United States in 68 years, which had been banned because of earlier outbreaks of foot-and-mouth disease.
A few months later, he helped arrange Clinton's historic meeting with former President Carlos Menem in Buenos Aires. And in January 1999, Guelar was instrumental in bringing Menem to Washington, in a trip that underscored the deepening friendship between the United States and Argentina, which by then had become Latin America's wealthiest country, with per-capita income exceeding $7,000 per year.
Back then, Argentina's economy was so strong that the International Monetary Fund and other financial institutions were holding the country up as a model for the rest of South America to follow. Its currency, the peso, was on par with the dollar, and inflation -- which as recently as 1989 had exceeded 1,000% a year -- was essentially brought down to zero. Between 1991 and 1997, annual GDP growth averaged 6.1%, the highest in the region. There was serious talk of dollarizing the whole continent, with Argentina leading the way.
What a difference three years makes. Menem, who privatized everything in sight but failed to stem unemployment or the corruption rife within his administration, is today largely discredited. So is his long-time economics minister, Domingo Cavallo, the father of Argentina's dollar-peso parity plan, who didn't see the disaster looming on the horizon.
In December, with unemployment on the rise, Argentina about to default on its $155 billion public debt and the country in the throes of a four-year-old recession that showed no sign of ending, violent protests began breaking out on the streets of Buenos Aires and other major cities, killing 26 people and injuring hundreds. Demonstrators forced the resignation of both Cavallo and Menem's successor, Fernando de la Rua, who was seen as weak and ineffectual. In the space of two weeks, Argentina went through four presidents.
The fifth and current president, Eduardo Duhalde, has remained in power through a "national unity government" that includes Guelar's party, the Justicialistas, and the two parties that were in power when the disaster happened, Frepaso and the Alianza. "And there is a very strong commitment on the part of the Catholic Church and the Jewish community," says Guelar. "This is the first time all faiths, all creeds, all sectors and 99% of the political spectrum is participating in a national unity government."
Yet its survival is far from certain. Two months ago, Duhalde had no choice but to dump the "convertibility" law that made one peso worth exactly one dollar. Once the Argentine currency was allowed to float freely, its value promptly plummeted to about 2.12 to the dollar, more than halving the savings of millions of Argentines whose bank accounts were in peso-denominated accounts.
"To give you an idea how bad we are," says Guelar, at least 40% of Argentines -- equivalent to 14 million of the country's 36 million inhabitants -- now live below the poverty line, with incomes of less than 120 pesos per month. The official unemployment rate is 24%, meaning that real unemployment probably exceeds 30%.
And perhaps most shocking of all, per-capita income has effectively been cut in half by the devaluation to $3,500. That means Argentina in per-capita terms is now poorer than Brazil.
For millions of Argentines, the cruel irony is that under an emergency decree, Argentines may withdraw a maximum of only 1,200 pesos per month from their checking accounts, and since Dec. 1, all savings accounts have been frozen. That means they can only watch as devaluation erodes the value of their life savings, even though the bank freeze ordered by De la Rua was recently declared unconstitutional by Argentina's Supreme Court.
"In general terms, there is no doubt the bank freeze was unconstitutional. In social terms, in an emergency, you have to adapt your individual rights to general situations," says Guelar. "Of course, the savers are not happy. They have every right to complain, and they are complaining. They demand their money."
The immediate prospects don't look too good, either. Official projections expect Argentina's GDP, which shrank by 7% last year, to contract by another 6% in 2002.
"Some economists say that's too optimistic, that GDP will really fall by 10-12%," says Guelar. "When you are in such a crisis, the natural instinct is to leave the country."
Thousands of Argentines are doing just that. The U.S. Embassy in Buenos Aires is literally besieged every day by visa-seekers; Guelar says between 250,000 to 300,000 Argentines now live legally in the United States, including 10,000 in the Washington, D.C., area. Hundreds of thousands of Argentines, claiming EU citizenship through their parents or grandparents, have emigrated to Italy, Spain and France. An estimated 80,000 Argentine Jews have resettled in Israel, and some Argentine Jews of Polish origin who don't want to go to Israel are attempting to get visas to Poland, such is a measure of their desperation.
"It's impossible to blame Menem or De la Rua by themselves," says Guelar, who is Jewish. "This is the result of very deep-rooted problems. The last administration was terrible, but it would be simplistic to say that the crisis was produced by De la Rua."
Rather, Guelar blames what he calls a "lack of commitment to public affairs by the leading classes of Argentina" -- a problem he said extended to his own family.
"When I joined the Peronist party at 18, I was rejected by my own family and the Jewish community," he told the Diplomat. "For a Jew to be a Peronist was to be a renegade. When becoming a policeman or a judge or a politician shames your family, something very wrong is happening. If public service is looked down on by the rich and the highly educated, then who's running the store?"
In August 1997, when Guelar and his wife Diana Custodio arrived in Washington for his first stint as ambassador here, he had just finished a three-year stint as Argentina's envoy to Brazil. Before that, he had spent seven years in Brussels representing his country before the European Union. Among other things, Guelar has edited the opinion page of Buenos Aires newspaper La Razón, and has taught at the University of Maastricht in Holland.
"I understand the problems that journalists have explaining what happened in Argentina, because it's hard for us to explain," he said. "Why did this happen in a country with 100 years of education, with almost no illiteracy, with highly qualified people, and with resources like food and energy not only for self-consumption, but also for export? This is a cultural problem that we can discuss for hours."
And the ambassador would, if he had the time. In summary, he says the solution is for Argentines to understand that they have "the human and economic resources to overcome the crisis" if only they can accept responsibility for the mess they're in, stop blaming the rest of the world for what happened, and overcome a level of corruption so widespread that an astonishing 70% of Argentines evade taxes.
"Corruption is a problem of Argentine society," Guelar said. "Our culture will change the day we expel high-school students who cheat on their exams. In Argentina, you're considered a smart guy if you cheat. The children of Menem used to cheat in school; the children of De la Rua cheat. What I'm saying is that since corruption is a social problem in Argentina, of course it's going to be reflected in the government."
He adds: "After all the crises we've gone through, at some moment we will have to rethink our basic attitudes. If not, there's no way we can recover."
Guelar says his objective as ambassador is "keeping alive our strong relations" with the United States while explaining as best as he can in clear, non-bureaucratic language what is happening to his country.
"It's a very dramatic national circumstance, and I have a great responsibility in Washington to represent such a circumstance. We have to be sure not that the crisis won't intefere with our friendship with the United States. The people who blame the U.S. for Argentina's problems are not right, and one of my responsibilities is to reject those kinds of ideas."
Guelar pointed out that despite Argentina's recent violence, "there was no burning of American flags. In Europe, almost every day there's some rally where they burn American flags."
Guelar said he's been "very warmly welcomed" by the Argentine community in the United States, "by the authorities of this administration, and by good friends I had in the last administration." In general, he said, relations between the two countries are "extremely good" at this moment.
"The Bush administration has been extraordinarily supportive," he insists. "We declared the greatest default on Earth, and they're not pushing us. On the contrary, they're trying to be helpful, but of course the solution is in Argentina, not here. We need to stabilize the situation first. We have to keep things under control, even though it's in the prognosis that our GDP is going to contract. The key issue is the political issue. There is no way to be successful in this transition period by 2003 if there is no confidence and support."
Argentina's immediate future also depends on successful negotiations with the International Monetary Fund, which refuses to disburse about $10 billion in desperately needed loans unless the Argentine government can show it's serious about making fiscal reforms.
"Of course, our credit is not in good shape," says Guelar, estimating per-capita debt at $4,200 -- the highest in the world. "There's no credit. Nobody can give money to a country that has just declared a default."
Argentina's economic nightmare has already had a major impact on neighboring Uruguay, where GDP is likely to contract 4% this year. The Uruguayan tourism industry -- almost completely dependent on wealthy Argentines who like to vacation at Punta del Este -- has been devastated.
But despite the warnings of some analysts, Guelar insists that Argentina's problems are unlikely to affect Brazil -- South America's leading economy -- or other major Latin American nations.
"Luckily, our neighbors managed better than us, because this is not a regional crisis," he said. "When the Mexican crisis exploded in 1994-95, world opinion turned against all emerging countries. Now things are changing. Investors and bankers is behaving in a far more sophisticated way."
Whether Argentina can ever recover is a different story.
"Some economists argue that now, more than ever, Argentines will trust no currency except the dollar. Once controls on bank deposits are lifted, they expect the peso to crash and Argentines to adopt the dollar de facto. That could spell the end of Duhalde's government," according to a recent article in The Economist. "Restoring public trust in government will take far longer. It means curing Argentina's long-standing fiscal weakness, as well as repairing the banks. Above all, it means a greater sense of realism, among politicians and people."
Says Guelar: "Without any doubt, it's a very serious and delicate situation, but things are beginning to improve. Major achievements are taking place, considering the emergency, like the approval of the budget and the federal government's agreement with the provincial governors."
In addition, a majority of Argentines now believe that Duhalde will finish his term in office -- a major achievement in itself, given the political upheavals of the very recent past. According to Guelar, Argentines will go to the polls on Sept. 14, 2003, and whatever government is elected will take office on Dec. 10, 2003.
And despite the gloomy economic forecasts, there's another reason for hope: a devalued peso makes Argentine exports considerably cheaper and more competitive, a fact that could help the country's troubled auto industry. It also makes Argentina -- once Latin America's most expensive destination -- a relative tourist bargain. With its rich cultural history, beautiful snow-capped mountains, pristine lakes and European architecture, Argentina could enjoy a boom in tourism from people who previously could not afford to go there.
"People from the U.S. are looking for opportunities in Argentina right now, because crises are also opportunities," said Guelar, naming tourism, energy, mining and food processing as key growth sectors. "People are also buying companies of those who are leaving."
Unfortunately, one industry not poised for growth is meat exports. Argentine beef can no longer enter the United States due to the recent re-appearance of foot-and-mouth disease.
"Luckily, the problem is under control and we've reopened the European market," says the ambassador. "But because the sanitary rules are more strict here, it's going to take one year more to open the U.S. market."
That has complicated Guelar's plans to revive his Smiling Beef Club, which was famous in Washington circles for its sizzling Argentine steak, and was open every Tuesday night during Guelar's last tenure as ambassador here.
But not to worry -- the meat-loving diplomat won't let his fans down.
"In the meantime, we'll have the Smiling Pizza Club every Tuesday from 7 to 10 p.m.," he says. "We'll serve Argentine beer and grilled pizza, until the beef arrives."