Wall Street and investors have exhaled a sigh of relief as Argentina's financial crisis has yet to bring down other markets around the region. Call it shortsighted.
Argentina's problems are a danger to the rest of the region but perhaps not in the sense of financial contagion -- at least not yet. The danger is to democracy and open economies.
Democracy in South America is already fraying. The ouster of former President Alberto Fujimori in Peru in 2000 revealed a web of corruption and human rights violations by military figures among others. Venezuelan President Hugo Chavez, a former army lieutenant colonel who in 1992 tried to overthrow the government in a failed bloody coup, now sees conspiracies everywhere. Then there was the brief intervention of the military in Ecuador during an economic crisis in early 2000.
The potential for social unrest in Argentina may be far worse than any of these.
"The middle class members are the ones who will really make or break" the Argentine government, says Miguel Diaz, director of the South America Project at the Center for Strategic and International Studies in Washington. "It was the middle class that turned on [former Argentine President Fernando] de la Rua and these middle class people might accept a military intervention" to end new violence.
More Dangerous
In the past, Argentines have been quick to compare their country to Italy, Spain or Belgium rather than their Latin American neighbors, with whom they have more in common.
It's partly pride -- Argentina once boasted one of the largest economies in the world -- and partly wishful thinking.
It's been more than half a century since Argentina was a global economic power and helped to feed Europe during the devastation of World War II.
Yet this time around Argentina's situation is indeed very different from its neighbors. It's much more dangerous.
Unlike the Mexican peso devaluation in 1994, the Brazilian real devaluation in 1999, and many other devaluations and crises in Latin America over the last decade, the Argentine financial crisis has great potential for sparking further serious social unrest.
There have already been three waves of street violence, the latest as Argentina's Congress was choosing Eduardo Duhalde as the new president Tuesday night. The crisis also may mark the start of a serious reassessment of liberal economic policies to reduce the role of the state and open economies to greater competition.
Free Market Critic Duhalde, Argentina's fifth president in less than two weeks, has made a career of criticizing exactly the kind of free market and open competition policies championed by former president Fernando de la Rua and former economy minister Domingo Cavallo, both forced to resign the week before Christmas. Duhalde appears to favor a more protectionist economic strategy.
Enough Support?
Duhalde has gone beyond criticism to practice. As the governor for eight years of Buenos Aires Province, Argentina's most populous, his freewheeling spending was a way of buying support. However, it led to a debt problem that remains today.
After Duhalde's tenure, the province had the biggest debt load of all of Argentina's provinces. Now he looks set to do more of the same as Argentina's president until 2003.
His campaign literature for his successful run for the Senate last October is revealing. Political "leaders didn't notice that by the end of 1995 there was a need for a change, that the existing model had worked for a stage of the country that has now passed," reads his Senate campaign description of his "new model for Argentine development." Duhalde's campaign Web page said that his proposals for a "profound change" and warnings about "the danger of following the same old solutions" were ignored by Argentina's ruling leaders.
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