America's Stake in Argentina

Report Americas

America's Stake in Argentina

December 6, 1989 22 min read Download Report
Michael G.
Senior Fellow and Director of Government Finance Programs

(Archived document, may contain errors)

742 December 6,1989 A1MERICAS SINCE IN ARGENTINA INTRODUCTION Carlos Saul Menem, Argentinas president, has been in office o nly five months. Yet he has launched a bold program to overhaul his countrys floundering economic and political systems by introducing free market and democratic reforms. For Menems reform strategy to succeed, he will need greater economic and military co o peration with the United States.The stakes for him and the U.S. are high, for if he is successful with his free market strategy, Argentina, like its neighbor Chile, will become an example for the rest of Latin America. If he fails, Argentina could lapse b ack into but another period of military rule and economic chaos, discrediting the promise for other Latin American countries of free market reforms.

In his first 100 days in office, Menem, who heads the Justicialist (Peronist Party and succeeded Raul Alfonsin of the Radical Civil Union Party (UCR has worked what many impartial observers regard as several minor miracles.

He has gained control over a staggering monthly inflation rate of 200 percent has begun to privatize failing state enterprises, and has de fused tensions within Argentinas restless armed forces. By trying to modernize Argentinas inefficient, state-dominated economic system, built in the 1940s by dictator Juan Doming0 Peron, Menem has turned to the free market as the only alter native for sol ving his countrys political and economic woes1 Reviving A Stagnant Economy. In this, Menem faces formidable obstacles.

These include a weak political base for his presidency, powerful organized labor opposed to market-oriented reforms, the reemergence of l eftist politi cal violence, and continued hostility between the civilian and military sectors of society. At the end of World War 11, Argentina was the worlds eighth 1 Foundation Backgrounder will review Argentinas economic situation.

This study focuses mainly on U.S.-Argentine political and security relations; a forthcoming Heritage largest economic power, whose standard of living rivaled that of the U.S.

Today its economy has fallen to 58th in the world. Although Argentina has a highly educated populace, abundant mineral wealth, and some of the worlds most fertile land, political conflict and an unproductive, state-dominated economy have impeded its devel opment dramatically.

Force for Peace and Stability. It is no small matter to the U.S. if Menem succeeds. With a population of 32 million and a per capita gross national product (GNP) of $2,390, Argentina is Latin Americas third most populous country and th ird strongest economic power (in both categories after Brazil and Mexico It also is strategically located at the southern tip of South America,.commanding the south Atlantic sea lanes through which pass a sig nificant portion of the Western Hemispheres tr ade. A democratic Argentina with a growing, healthy economy could not only be a force for peace and stability in Latin America, but an important trading partner.

With Argentinas potential as a leading power in the Americas, Washington has a direct interest in ensuring that the Menem governments political and economic reforms serve as a model of economic growth for the rest of Latin America. To help foster a democratic and economically healthy Argentina and to protect U.S. security interests in the South At l antic, the U.S. should The U.S. can help Argentina move toward political and economic freedom I 4 Stress Washingtons support for Menems reform program Press the Menem government to swap equities in Argentine companies for cancellation of foreign debts Inc r ease military assistance and training programs to encourage democracy among the military and to enhance Argentinas capability to combat terrorism and armed revolutionary groups 4 +Work closely with Argentina to combat narcotics trafficking Encourage Argen t ina to support pro-democratic forces in Central Work with Britain and Argentina to help resolve the Falkland Islands I America impasse A HISTORY OF U.S.-ARGENTINE RELATIONS The U.S. and Argentina established formal diplomatic relations in 1823 but had lit t le political and economic contact during the 19th century. Low points in the relationship came during World War 11, when Argentina sym pathized with Nazi Germany, and again during Argentinas most recent military dictatorship (1976-1983) when human rights a buses and Washingtons support for Britain in the 1982 Falklands War unleashed a tor rent of anti-Americanism in Argentina 2 Economic Competitors. In the half century prior to Alfonsins election, Ar gentina had only one real democratic government, the pres i dency of Arturo Frundizi from 1958 to 19622 The U.S. and Argentina have always been economic competitors, exporting many of the same commodities, such as 2 Foreign Policy Research Institute, 1989 p. 6 3 for Strategic and International Relations Latin Amer i can Election Studies Series, Report #2, May 23,1989, p. 1 Mark Falcoff, A Tale of Two Policies: U.S. Relations with the Argentine Junta, 1976-1983 (Philadelphia Manuel Mora y Araujo and Felipe Noguera, The 1989 Argentine Elections: Post-Election Report, C e nter 3 THE SECURITY COMPONENT OF U.S.-ARGENTINE RELATIONS For most of this century, Argentina has not been an active player in the af fairs of other Latin American countries or in Inter-American multilateral in stitutions like the Organization of American States (OAS Where it has been active, Argentina often has opposed U.S. security policies. During the Alfon sin administration, for example, Buenos Aires opposed Washington's support for the Contra Freedom Fighters in Nicaragua and expressed this in the OA S.

US.-Argentine security relations have been limited because of Argentina's historic domination by the military, its past human rights abuses, and the fall out from the Falklands War with Britain.

Argentina's Restless Military Until the democratic election of Alfonsin, a major problem in US.-Argen tine relations was the domination of Argentina's government by the military.

The armed forces have hand picked thirteen of the 21 presidents since 1943 and mostly from within their own ranks.The undemocratic an d repressive character of the military regimes made for an uneasy relationship with the US? The U.S for example, refused to provide military assistance to Argen tina between the late 1970s and this year because of human rights abuses believed perpetrated by the military.

The military's return to power, however, no longer seems likely. For one thing, Argentine military leaders apparently do not want to assume respon sibility for the very formidable economic crisis facing Argentina. With the ex ception of Ch ile, military-controlled Latin American governments traditional ly have been ineffective in spurring economic growth. For another thing, the military historically has been more sympathetic to the Peronists than to the Radicals, who have attempted to curb t heir influence and reduce their budget. Menem is a Peronist and therefore will enjoy substantial support in the military. And then, the Argentine military, like most of the hemisphere's armed forces, now publicly cl im to support civilian government and t here fore want to give it a chance.

The #Dirty War" and Ns Fallout Dirty War" from 1976 to 19

83. This was a government counterinsurgency campaign conducted against leftist guerrillas made up of the Montoneros of the Peronist far-left and the Soviet-backe d People's Revolutionary Army known as ERP, for Ejercito Revofucionarib Popular).This war cost the lives of at least 9,000 Argentines. Soon after taking office, Alfonsin ordered a full scale investigation into the human rights abuses of the armed forces. A p proximately half a dozen former senior military leaders were convicted, in cluding former junta commanders Generals Jorge Videla, Leopoldo Galtieri d The problem of military dictatorship was revealed tragically in the so-called 4 5 Gary Mead Army Casts a Shadow over Argentine Poll The Financial rimes, April 27,1989, p. 7 David C. Jordan Is Peronism Democratic Ihe Word and I, May, 1989, p. 128 4 and Roberto Viola. Hundreds of other military personnel were found guilty but were pardoned.

Militarys Clout. The civilian governments prosecution of military leaders caused great tension between the government and the armed forces. As a result, there have been three military mutinies since civilian control returned to Argentina in 19

83. On April 17,1987, for exa mple, Lieutenant Colonel Ado Rico led a military rebellion against the government. Storming the Campo de Mayo military barracks on the outskirts of Buenos Aires, Rico demanded better treatment of the armed forces. Bowing to his demands, the Argentine parl iament that June 5 passed legislation limiting prosecution for crimes during the dirty war to officers only at the highest ranks.

In another mutiny, rebellious troops led by Colonel Mohamed Ali Seinel din took over the Campo de Mayo military school in December 19

88. Claim ing that he did not intend to overthrow the democratic government, Seineldin nonetheless demanded that low-levelcashiered officers be pardoned for their patriotic efforts in the war against internal subversion. He also called for a pay i ncrease for soldiers and a bigger defense budget! As an indication of the militarys continuing clout in Argentina, Seineldin today is being considered for a high-level Defense Ministry job or to command an anti-narcotics task force In one of the new Menem governments first significant actions to restore better relations with the military, Defense Minister Italo A. Luder, an nounced on June 11 that the government would end some trials against Ar gentine military officers. In October Menem pardoned 39 senior military of ficers on trial for human rights abuses. This pardon was extended to at least some 175 military personnel and civilians who had participated in uprisings against the Alfonsin government in 1987 and 19

88. It also was extended to three former military rulers sentenced for mishandling the Falklands War and 64 people accused of leftist terrorist activity. A second round of pardons is expected in the coming months?

Renewed US. Military Assistance U.S. mili tary aid to Argentina has been limited as a result of Argentinas poor human rights record. Military aid from the U.S. to Argentina ceased in 1977 when the U.S. Congress approved the so-called Humphrey-Kennedy amendment banning the sale of arms to countrie s violating human rights.The rise of democracy in Argentina, however, has eased U.S. resistance to military aid to Argentina. Secretary of State George Shultz, for example, met with Argentine leaders in August 1988 to reestablish a strong military 6 Gary M e ad, Army Casts a Shadow over Argentine Poll, The Financial Times, April 27,1989, p. 7 7 October 11,1989 See GaryW. Wynia, Campaigning for President in Argentina, Current Histoty, March 1989, p. 136 and Cristina Bonasegna, Argentine Pardon Unlikely to reso l ve Rights Conflict, The Christian Science Monitor 5 relationship between the U.S. military and Argentine military. As a result of this and other high-level meetings between U.S. and Argentine military per sonnel came the agreement of last February 21, whi ch began U.S. arms sales and training programs for Buenos Aires.

Since then Washington has given Argentina $12.3 million to maintain and refurbish U.S.-made armored vehicles, helicopters, and other military material sold some years ago to Argentina! Menem also has stated that he is considering entering into additional U.S.-Argentine military agreements on joint training and further arms sales.

Washington hopes to gain some influence over the Argentine armed forces to keep them out of politics.This could be st be achieved by fostering and rein forcing contact with U.S. military officers committed to democratic values and institutions.The U.S. also wants to assist Argentina in maintaining effec tive defenses against such internal and external threats as terro rism and nar cotics trafficking. This expanded contact and cooperation may help ensure political stability in Argentina and could promote U.S. security interests in the South Atlantic by increasing U.S. influence in the region.

The return of democracy to A rgentina has not stopped the threat posed by such leftist guerrilla and terrorist organizations as the Communist Party, the Workers Party, the Movement for Socialism, and the All For the Father land (MFT) terrorist group a branch of the Peoples Revolution ary Army that was active in the 1970s.

For example, approximately 50 heavily armed men and women took over the LaTablada military base on the outskirts of Buenos Aires on January 23 in an attack that purportedly was meant to pre-empt a coup by right-wing A rmy officers. The attack, it is believed, was carried out by the All for the Fatherland movement. The ensuing battle involved tanks and a heavy artil lery bombardment against the insurgents in the base. Some 36 people died including seven soldiers, one po liceman, and 28 terrorists.

Link to Nicaragua. After the LaTablada attack, then-hgentine Foreign Minister Dante Caputo stated that there was evidence linking the guerrillas to Nicaraguas communist Sandinista regime. Some of the terrorists had visited Nicar agua in the previous several years, while the leader of the raid Enrique Harold0 Gorriaran Merlo, a former Argentine leftist guerrilla and one of Argentinas most wanted fugitives, had participated in the assassina Expanding Cooperation. Through renewed U. S . military assistance P 8 9 10 Tough Bunch, Whoever They Are, The Economist, January 28,1989, p. 40 11 Paul Bedard and Peter LaBarbara, Nicaraguan Link Cited in Argentine Base Attack, The Washingson limes, February 15,1989, p. A7 Foreign Broadcast Informa tion Service(FBIS Military Agreement With U.S. Signed, February 23,1989 James Brooke, Tood Rioting Worsens and Spreads in Argentina, The New Yo& limes, June 1,1989, p. A7 p. 44 6 tion of former Nicaraguan dictator Anastasio Somoza in 19

80. Argentine authorities also said that equipment and other evidence recovered from the guerrillas included Soviet and Chinese-made automatic rifles, hand grenades and rockets, and Cuban cigarettes, suggesting that the raid had foreign back ing.

American terrorist groups.T he Alfonsin government confirmed in April that members of All for the Fatherland had held a clandestine meeting in March 1989 with the Perus Maoist Shining Path terrorist group, Latin Americas most violent guerrilla organization. The meeting, which took p lace in the northwestern Argentine city of San Miguel deTucuman, was apparent ly an effo to explore possibilities for coordinating terrorist activities in Latin America.

The Falklands Issue The ten-week Falklands War in spring 1982 was a disaster for Argen tina 600 Argentines died and $1 billion worth of weapons were lost, including 45 aircraft. Today, the Falklands fiasco remains one of Argentinas most emo tional and debated issues. Menem stated in a speech in February that Argen tina [would not give up it s efforts to obtain sovereignty over the ar chipelago Menem also stated that he might expropriate British assets in Argentina unless they gave up their claim over the islands.

Over the past several months, however, the Menem government has sof tened its po sition on the Falkland Islands. During a September visit to the U.S Argentine Foreign Minister Doming0 Caval10 said that in return for res toring normal air, sea, and communications links with Britain, Argentina would ask Britain to lift its restrictions o n foreign shipping passing within 150 miles of the Falklands. Argentina also pledged in September to consider lift ing all restrictions imposed on British companies operating in Argentina and would formally lift the state of hostilities that it claims sti ll exists between the two countries. Britain and Argentina held meetings in Madrid on October 17 and 18, which resulted in reestablishment of consular and trade relations.

Meanwhile, negotiations are scheduled to continue next February in Mon tevideo, Urug uay. The e eventually could lead to the resumption of full US. and Argentina Anti-Narcotics Cooperation Argentina is a refining and transit center for cocaine and marijuana enter ing the U.S. and Europe and a source of ether and other chemicals used in dr u g manufacturing. Cocaine enters Argentina through the northern provin 12 Support for Argentine revolutionaries also is coming from other Latin B diplomatic relations. l 12 Paul Bedard, Nicaragua Link Cited in Argentine Base Attack, The Washington limes, F e bruary 15,1989 p. A7 l3 FBIS, Shining Path Reportedly Holds Meeting inTucurnan, April 18,1989, p. 29 14 FBIS, Menem on Plans for Falklands, British Assets, February 21,1989, p. 41 15 FBIS, October 23,1989, pp. 40-41 7 ces of Salta and Jujuy, which share a rugged 300-mile border with Bolivia where coca leaves are grown. These provinces themselves, moreover, increas ingly are being used for coca cu1tivation.l6 Argentina, however, has begun trying to control drugs. Since last year it has doubled the number of drug seizures and arrests, confiscating in 1988 alone 3.24 metric tons of marijuana and 1.17 metric tons of cocaine; over 7,000 drug arrests were made.17 The U.S. and Argentina signed a cooperation agree ment this May 24 to reduce the demand for illegal d r ugs in Argentina and to prevent unlawful consumption, production, and trafficking of drugs in that country.The two countries will share information on regional drug trafficking activities, exchange anti-narcotic experts, and participate in joint eradicati on programs to destroy drug crops.

Argentine-Soviet Relations Argentina's relations with the Soviet Union have blossomed since the 1979 U.S. grain embargo cut off U.S. grain sales to Moscow. Since then, the USSR has become one of Argentina's largest grain consumers, importing as much as two-thirds of Argentina's total grain exports, or some 15 million metric tons.

Because of a drastic fall in Argentine grain production last year, however grain exports to the Soviet Union d ropped to only 3.5 million tons. Overtaxa tion of Argentina's farmers over the past several years has hindered produc tivity. For every dollar the farmers earn from grain exports, the state claims 40 cents.

A 1986 trade agreement between Moscow and Buenos Aires commits both countries to high levels of trade through the 1990s.Traditionally, the balance of trade has favored Argentina. Consequently, the Soviet trade representative to Argentina, AnatoliyTimochenko, stated on November 8 that the two countries w ill soon sign additional commercial agreements that will involve expanded industrial and technological cooperation and will lead to a substan tial increase in Soviet exports to Argentina.lg Moscow also concluded several agreements with Buenos Aires in the mid-1980s to help build shipping and dry dock facilities in Argentina in return for the import of such agricultural products as beef and grains.m Other Argentine exports to the U.S.S.R. in clude oilseed, wool, and leather; the Soviets supply Argentina wit h industrial equipment and technology. Overall Soviet investment in Argentina is ex pected to rise to $500 million by 1990 ments with the Alfonsin government which allow the Soviet fishing fleet to fish in Argentina's coastal waters and to use its port fac i lities.These agree 11 Dangerous Agreements. ne Soviets also concluded several fishing agree 16 "The International Narcotics Control Report U.S. Department of State, March 1989, pp. 55-58 17 Op. cit p. 19 18 FBIS, "Pact to Fight Drugs Signed With the U.S M a y 26,1989, p. 37 19 FBIS Soviet Officials Discuss Grain Purchases November 9,1989, p. 1 20 Michael G. Wilson A Ten-Point Program to Block Soviet Advances in South America Heritage Foundation Backpunder No. 658, June 22,1988, p. 7 8 ments, made over the pa st five years, could endanger U.S. security by provid ing Moscow opportunities to use fishing and port call privileges as cover to ex pand their intelligence gathering activities in the South Atlantic.

Alfonsin visited Moscow in October 1986.This was the f irst trip to the U.S.S.R. for an Argentine head of state. Soviet Foreign Minister Eduard Shevardnadze reciprocated, travelling to Argentina the following year. The Soviets told the Alfonsin government that they were willing to train Argen tine Air Force p e rsonnel in Moscow's cosmonaut program. They also offered to cooperate in developing rocket and satellite technology, and to discuss new trade opportunities with ArgentinaFl Since his election, Menem has stated that his government intends to continue stren gthening Argentina's economic and diplomatic relations with Moscow.

Argentina's Growing Ballistic Missile and Nuclear Capabilities Argentina's ballistic missile and nuclear policy has been of particular con cern to Washington. Argentina is, in fact, one of the world's most active ex porters of missile and nuclear technology to the Middle East and other poten tial Third World trouble areas. Examples: Argentina has exported to Iraq components of the Condor I1 ballistic missile; Argentina has exported to Al g eria a nuclear research reactor; Argentina is believed to provide Iran with nuclear reactor components; Argentina is considering expanding nuclear ties with Egypt, Iraq, Saudi Arabia, and Syria.

Unlike most of the world's nuclear suppliers, Argentina has n ot signed the 1968 Non-Proliferation of Nuclear Weapons Treaty (NIT). The NIT at tempts to halt the dissemination of nuclear weapon technology in theThird World by prohibiting the manufacture or acquisition of nuclear weapons or technology by countries wi t hout a nuclear capability. U.S. concerns over nuclear development inside Argentina focus primarily on its nuclear reprocessing plants, nuclear research reactors, and a uranium enrichment facility under construction. These facilities could be used to manuf acture nuclear weapons.

Using Foreign Technology. Argentina's Air Force began its ballistic missile program in 19

79. A Swiss firm was hired to manage the initial research and development, including construction of a large underground missile develop ment facility near the northern industrial city of Cordoba. Buenos Aires began work on the Condor I missile in the early 1980s. It was designed with French, West German, and Italian technology, and has a range of 90 ihiles.

Since it was first displayed publicly in 1985, the Condor I has been tested suc cessfully several times, though it does not yet appear to be fully operational.

Britain revealed in 1984 that Argentina was developing a larger version of the Condor I able to travel at least the 300 miles to s trike the Falkland Is lands. The new Condor I1 ballistic missile is now known to have a 500 mile range 21 Eric Ehrmann Argentina: Coup or Democracy Journal of Defense and Diplomacy, November 1987, p. 51 9 Egypt joined the Argentine Condor II program in 19 84 with Iraqi financial backing. Several Egyptian nationals were arrested in June 1988 trying to il legally ship heat-shielding missile technology out of their country for the Ar gentine program.

Despite Argentine claims that its missile program is for space research these activities are of great concern to Washington because of Argentina's ap parent intention to export ballistic missile components to the Middle East.

The U.S. repeatedly h%taken up the Condor issue with Argentine authorities at high-level meetings.

Argentina's motives for its nuclear and ballistic missile activities are profit and national pride. Buenos Aires hopes to use the money earned by nuclear exports to help pay off its $60 billion foreign debt and wants to demonstrate that it can c ompete with the world's industrialized countries in high-technol ogy exports The Argentines also want to keep pace with neighboring Brazil's growing Son& ballistic missile program U.S.-ARGENTINE ECONOMIC RELATIONS Before World War n, Argentina's economy r i valed that of many large European countries. Ranking as one of the world's top ten economic powers Argentina was a leading exporter of grain and meat, and had a transportation network unsurpassed outside Europe and the U.S. Four decades of socialist state - dominated economic policies, however, have nearly bankrupted Argen tina. Its foreign debt currently is $60 billion, the third highest in Latin America, after Brazil and Mexico and has not in over a decade. Argentine exports to the U.S. last year were 1.5 b illion consisting mainly of petroleum products, leather, nd meat. In comparison, the U.S. imported $10 billion in Brazilian goods. U.S. exports to Argentina last year totaled approximately $1 billion, consisting mainly of office machinery, transport equip ment, chemicals, and computers.

Washington announced in late September that it supported an estimated $1.1 billion in loans to Buenos Aires from such multilateral lending institutions as the International Monetary Fund (IMF).These loans are designed to hel p Ar gentina pay the interest on its foreign debt.

Bold Campaign. After taking office in July, the Menem government imme diately introduced reforms to stabilize the economy, stimulate investment privatize industry, and promote gr owth. He has negotiated wage and price contracts with Argentine industry, commerce, and labor. Menem also has begun a program to overhaul Argentina's inefficient tax collecting system Washington provides no economic development assistance to Buenos Aires 2 2 "Missile Proliferation in theThird World Stmtegic Survey, 19881989, pp. 14-25 23 Joel M. Rothblatt Argentina's Aggressive Nuclear-Export Policy, The Chtistian Science Monitor, June 8 1989 24 International Monetary Fund Direction of Trade StatisticsYearb ook, 1989, p. 403 10 reducing the number of taxes but making tax evasion, which is widespread, a criminal offense.

Most important in the long term, probably, Menem has embarked on a bold privatization campaign. Under his prodding, the Argentine legislature passed two new laws over the summer curtailing government subsidies of in dustry and mandating the sale to private investors of such state-owned enterprises as the railway and telephone systems. Finally, upon taking office Menem opened negotiations with Argentinas powerful labor unions to prepare the way for reducing the size of the public work force.

As a result of these reforms, inflation dropped from near 200 percent a month in June to 5.6 percent in October. While the annual growth rate for the Argent ine economy is projected to contract 5 percentage points this year it is expected to grow by 4.5 percentage points next year. Central Bank reser ves, which had dropped to about $100 million in May, are now up to $1.8 bil lion, and interest rates have stab i lized somewhat, averaging 10 percent per month. The Menem government also has reduced greatly barriers to foreign investment by eliminating restrictive foreign investment laws. Argentina is en couraging foreign investment in most areas of the economy, esp e cially in agriculture and petroleum U.S. POLICY TOWARD ARGENTINA In formulating its policy toward Argentina, the Bush Administrations primary objective should be to encourage and assist the Menem governments free-market economic reform and continued trans i tion toward strong civilian democracy. To achieve this, the U.S. should 4 4 Stress Washingtons support for Menems reform program. Bush and Menem agreed in their first meeting, held in Washington last September, to support Argentinas free market reform pro g ram. It is important for the U.S that Menems reforms succeed. Not only would this serve as a model for others in Latin America, it would bring greater economic and political stability for Argentina, which is in the U.S. interest. To demonstrate U.S suppor t for Menems reforms, Bush should send Secretary of State James Baker and Secretary of theTreasury Nicholas Brady to Buenos Aires soon for high-level meetings with their counterparts. They not only should discuss ways in which the U.S. could assist free ma r ket reforms in Argentina, but explore avenues of cooperation on such issues as trade, debt negotiations terrorism, and drug trafficking companies for cancellation of foreign debts. U.S. debt policy toward Latin America should be premised upon helping coun t ries that help themselves. As such, U.S. support for World Bank, International Monetary Fund, and Western government assistance to Argentina should depend on how aggressively the Menem government pursues free market techniques for reducing their countrys $ 60 billion foreign debt. One such technique is what is known as debt-equity swaps. In a debt-equity swap, the lender (such as a 4 4 Press the Menem government to swap equities in Argentine 11 U.S. bank) sells its note for the hard currency debt at a disco u nt to a middleman.The middleman then redeems the debt from the debtor countrys government for local currency or some state-owned asset, such as shares in a factory. The result of this three-way transaction: The lender recovers part of a loan that likely n e ver would be repaid in full, the middleman becomes the investor in the local economy, and the debtor governments external debt is reduced. currently provides no grants or credits for military purposes to the Menem government. Prior to 1983, such assistanc e was restricted because Argentina was not a democracy. Now that Argentina has had a functioning democracy for over six years, assistance should be reinstated. The level of assistance should be linked to the Menem governments response to U.S. concerns over Argentinas foreign policy, including the Falklands issue, Central America nuclear sales to the Middle East, and their ballistic missile program.

Renewed assistance should be used primarily for training and equipping Argentine military units for combating terrorists and armed guerrillas. Such assistance would enable the U.S. to improve ties with Argentinas armed forces because of the important role they play in Argentine politics.

Expanded U.S. contact with Argentinas military may help develop its respect for civilian government and protect collective security interests in South America. Washington should continue to use its International Military Education and Training (IMET) programs to foster and reinforce democratic values in the Argentine armed forces . IMET is a U.S. government grant pro gram administered by the Department of Defense that provides technical training and personal contact between U.S. and foreign military personnel. So far this year, Washington has given Buenos Aires $157,000 in IMET ass is tance.

The U.S. should also negotiate an anti-terrorism mutual assistance agree ment with the Menem government focusing on military training programs, in telligence coordination, and sending U.S. equipment and arms to Argentina to combat terrorism. U.S. assistance specifically should include the sale of radar equipment, helicopters, patrol boats, night vision equipment, and ar mored personnel carriers. Such a agreement would cost the U.S. ap proximately $20 million.

Latin American drug network has sprea d to Argentina.The Bush Administration already has begun to deal with the problem. Washington signed an agreement with Buenos Aires this May 24 to coordinate the two governments campaigns against drug production, trafficking, and consumption. The agreemen t also improves cooperation in confiscating goods and profits from drug trafficking. More should be done.The Bush Administration should provide the Menem government with the resources and intelligence information to fight the traffickers.This should includ e the sale of such equipment as off-road vehicles, A4 and A-37 pursuit aircraft Increase military assistance and training programs. The U.S Work closely with Argentina to combat narcotics trafiicking. The 12 helicopters, patrol boats, and small arms to int e rdict and eradicate drug operations Encourage Argentina to support pro-democratic forces in Central America. Non-democratic forces continue to threaten Argentinas political stability. Argentinas leaders clearly understand how difficult this struggle for d e mocracy can be. Yet they curiously remain generally aloof from the struggles inside Panama and Nicaragua to end authoritarian rule. At the very least, Washington should ask Menem to provide moral and diplomatic assistance to such democratic forces in Cent r al America as the Nicaraguan Democratic Union (UNO) and the Panamanian civilian opposition, the Coalition of National Liberation (COLINA The Menem government has taken a step in the right direction by refusing to recognize General Manuel Antonio Noriegas i llegal regime in Panama.The Bush Administration also should encourage Buenos Aires to dispatch officials to Nicaragua to monitor the February elections there Islands impasse. The diplomatic standoff between London and Buenos Aires over the Falkland Island s appears to be easing somewhat.The two sides have agreed to send delegations to Montevideo, Uruguay this month to discuss the resumption of full diplomatic relations. This dispute, however, once again could flare into a hostile confrontation, threatening S outh Atlantic sea lanes and Argentinas fledgling democratic rebirth. Such a conflict would not be in U.S. interests.The Bush Administration should work with both countries to resolve the crisis by dispatching a special U.S. negotiator to help mediate betw e en Buenos Aires and London Workwith Britain and Argentina to help resolve the Falkland CONCLUSION Argentina may be at its most important political and economic point in its modem history. Should Menem succeed in consolidating democracy and free market ref o rms in his country, Argentina could become an example for the rest of Latin America and theThird World. With Argentinas educated population and abundant natural resources, the only barrier to continued economic and democratic growth is a reversal of Menem s reform program economic interests in the Americas. Argentina and neighboring Brazil could emerge as a unified economic and diplomatic bloc in the Soiithem Hemi sphere.Their leadership in Latin America and the rest of the developing world will affect U.S. interests. If Menems reforms fail, Argentina could lapse back into military rule, and political and economic chaos, possibly des tabilizing the South Atlantic region of South America. If this happens, the U.S. could be faced with the emergence of new and powerful anti-American regimes in South America.

U.S. Encouragement. The U.S. has an important role to play in encourag ing economic development and democracy in Argentina. Washington should urge Menem to continue his economic and political reforms. Specif ically, the Menems success or failure is no small matter to U.S. security and 13 Bush Administration should encourage expanded privatization and free market reform; assist Argentina in reducing its foreign debt through such free market techniques as debt- equity swaps; increase bilateral security coopera tion to combat terrorism and drug trafficking; and encourage a Argentine British rapprochement on the Falkland Islands.

Test Case. In the long run, political and economic stability in the Western Hemisphere rests on the success or failure of reformers like Carlos Menem.

Argentina, like Mexico, is currently being looked at as a test case for the rest of Latin America. If Menem fails, economic and political freedom may suffer a terrible setback throughout the rest of the Americas.

Michael G. Wilson Policy Analyst I 14


Michael G.

Senior Fellow and Director of Government Finance Programs