Dr. Joe's Miracle Cure

How Argentina brought its economy back from the brink

Inflation is surging ahead at 115% annually. Interest rates are gyrating wildly. The value of the national currency is constantly falling. Many plants are operating at only 33% of capacity.

In most countries, such dire economic indicators would be regarded as signs of ruin. Not in Argentina. The reason is that only a few years ago, the situation was far worse--so catastrophic that today's troubles seem mild by comparison. At that time, inflation for a short while peaked at the mind-boggling rate of 17,000%. When money lost most of its value, the economy ground to a halt. Few of Argentina's 27 million people worked, since salaries were worthless. Terrorists were routinely kidnaping and gunning down businessmen and military leaders.

In 1976, as the country careered toward total chaos, Argentina's generals ousted the inept Isabelita Peron, who had assumed the presidency two years earlier after the death of her demagogic husband Juan Peron. He had ruled Argentina for a total of ten years, interrupted by a period of militarily enforced exile.

Once in power, the military men launched an all-out war against terrorists, and in the process often brutalized legitimate dissidents as well. On the economic front, the junta acted more reasonably. Under the leadership of General turned President Jorge Rafael Videla, the military men appointed as Economics Minister a respected landowner and industrialist, Jose Alfredo Martinez de Hoz. His mandate: bring about an economic renaissance, but without worsening the country's already acute political tensions.

Upon taking over as economic czar, Dr. Joe, as he is popularly known in Argentina, began cautiously but firmly to apply free-enterprise remedies. By almost any measure, Argentina ought to be an economic Eden. It has vast wheatlands, huge herds of cattle and important mineral deposits, including uranium and copper. But two decades of revolving-door economic managers helped to impoverish the land. In the past 35 years there have been 35 previous ministers, including Martinez de Hoz himself for nearly five months in 1963. If nothing else, he has set a postwar record for longevity in office: four years as Economics Minister.

Early on, Dr. Joe administered bitter medicine to the country's strong trade union, the General Confederation of Labor, which Peron and Wife Evita had made their power base in the 1940s and '50s. By limiting the power of the unions to negotiate nationwide wage contracts, Martinez de Hoz substantially reduced their clout. He began to whack away at the inefficient state-owned industries. The nationalized companies, heavily featherbedded, were ordered to sack unnecessary employees; the railroad fired 60,000 workers, and the state oil company 12,000. Meanwhile, the government sold off 342 state-owned firms, including textile mills and petrochemical plants. Even so, the output of government-run enterprises still accounts for an estimated 12% of the country's $103 billion G.N.P.

To trim that percentage further and stimulate more business competition, Martinez de Hoz has granted tax incentives to encourage foreign firms already in Argentina to expand their operations and new ones to set up plants. So far, the response has been positive. Ford plans to spend $160 million on expansion of its plant located in a suburb of the capital. Volkswagen intends to invest $100 million to expand the plant it bought from Chrysler. Martinez de Hoz also relaxed Argentina's ultranationalist laws banning foreign oil companies from participating in petroleum exploration. In response, foreign firms have spent at least $400 million on the search for oil. Result: Argentina will become an oil exporter in 1981.

Runaway prices remain Martinez de Hoz's most pressing problem. Rents in Buenos Aires range from $1,500 to $6,000 for modern three-bedroom apartments. A new Brazilian-made Volkswagen fetches $16,000, and a Japanese color television set costs at least $2,500.

In an attempt to damp down such prices, Dr. Joe has adopted a policy of lowering Argentina's once fearsome tariff walls to allow cheaper foreign goods to flow into the country. Import duties have averaged over 45%, but the goal is to reduce them to 15% by 1984. The Argentine balance of payments will remain in the red this year, despite the export of grain to the Soviet Union following the embargo of U.S. sales to that country in January in retaliation for the Afghanistan invasion. The Soviets will buy $800 million worth of grain and meat from Argentina this year.

The Economics Minister is trying to re-establish confidence in the peso by abolishing price controls and interest ceilings. In the new economic climate, Argentines are flocking to put their money into banks that pay the highest interest rates. While the economy remains tenuously balanced, Martinez de Hoz told TIME'S Buenos Aires bureau chief George Russell: "We never expected quick results, but in the '80s we are going to reap the fruits of all our measures."

Maybe. Dr. Joe has undoubtedly begun to steer the Argentine economy in the proper direction, and it could be approaching something of a boom era. But the Argentines have a long and discouraging tradition of social turmoil. There are still plenty of skeptics willing to bet that they will once again manage to turn immense potential and budding economic stability into politically induced poverty.

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