IV. POLITICAL ENVIRONMENT THE ARGENTINE POLITICAL SYSTEM Argentina is a constitutional democracy organized on a federal basis. The 1853 national constitution provides for a bicameral legislature and an independent judiciary. The executive traditionally has dominated federal politics. (Each province has its own constitution.) Many rights are reserved to the provinces under the constitution, producing a balance between federal and provincial authority which is more akin to that of Canada than to that of the Unites States. The President and Vice President are elected to single six-year terms and cannot immediately run for reelection. The two Senators from each province are elected to nine-year terms by their legislatures; the two senators representing the Federal Capital are elected by an electoral college chosen by popular vote. Deputies are elected for four years, in alternate terms, with half standing for reelection every two years. The President appoints Cabinet ministers. The Constitution grants the President considerable power, including a line item veto. The Constitution establishes a separate and independent judiciary. The President appoints the members of the Supreme Court of Justice with the Senate's consent. The Supreme Court has the power, first asserted in 1854, to declare legislative acts unconstitutional. On October 30, 1983, after nine years of dictatorship, Argentines voted for a president, vice president, and 14,000 other national, provincial and local officials in fair, open and honest elections. Raul Alfonsin, the candidate of the Radical Civic Union (UCR), won the presidency with 52 percent of the vote and began a six-year term of office on December 10, 1983. The Alfonsin government took steps to resolve some of the nation's most pressing problems, including accounting for "missing" citizens during the era of terrorist groups, establishing civilian control over the armed forces and consolidating democratic institutions. In May 1989, Carlos Saul Menem, the candidate of the Justicialist Party (PJ), was elected President with 47 percent of the vote and a clear majority in the nation's electoral college. The PJ and its allies also won control of both houses of the new Congress, which took office in December 1990. A rapidly deteriorating economy and a resultant loss of confidence in the national government led Alfonsin to leave office five months early, allowing Menem to assume office in July 1989. This was Argentina's first transfer of power between democratically elected leaders in over sixty years. Staggered elections for provincial governors and national deputies held during the latter half of 1991 enhanced President Menem's political position and increased the number of PJ members in Congress. The PJ also received strong support in the October 1993 midterm congressional elections and won a plurality of votes in the April 1994 Constituent Convention elections. Presidential and congressional elections are next scheduled for 1995. In April 1994, voters elected delegates to a Constituent Convention that will revise the 1853 constitution. The convention's inaugural session took place on May 25, 1994. It is considering -- among many proposed reforms -- the abolition of the electoral college, the possibility of reelection for a sitting president, the reduction of the presidential term to four years, the reduction of senatorial terms, the relative expansion of the powers of the judicial and legislative branches of government, and the direct election of the mayor of the Federal Capital and of members of the Senate. The Convention should complete its work in late 1994. ARGENTINE POLITICAL PARTIES General Juan Domingo Peron, President of Argentina from 1946 to 1955, founded the Justicialist Party (PJ, known popularly as the Peronist Party) in the 1940s. He built his Peronist movement on a foundation of statist and strongly pro-labor polices. Following its defeat in the 1983 presidential elections, control of the PJ passed to a reformist faction which democratized the party's structure and led it to victory in the 1987 congressional elections. The PJ joined the Christian Democratic International in early 1994 and has advocated a political opening to the developed world and close ties to the United States and Europe. The Radical Civic Union (UCR), Argentina's leading opposition party, is also the country's oldest party. Since the turn of the century it has traditionally represented middle class interests. Its leader, former President Alfonsin, belongs to a faction of the party that leans towards a social democratic philosophy. The party has moved away from the statist and non-aligned policies of Alfonsin's years as President and accepts the broad outlines of the Menem Administration's social and political reforms. The UCR claims that, if elected, it would place heavier emphasis on social concerns than the current government. In addition to the PJ and the UCR, Argentina has a large number of smaller regional parties and parties on the right and left of the centrist UCR and PJ. In aggregate, they can play an influential role in the national Congress and often control provincial governments. Most regional parties accept the general policy direction of the Menem Administration, but tend to seek both greater financial support and less interference in provincial affairs from the central government. Even more ideologically based parties, such as the leftist Broad Front and the nationalist Movement for National Dignity and Independence, have moved towards the center in response to the success of the Menem economic program. The Menem Administration has pursued wide-ranging economic reforms designed to open the Argentine economy and enhance its international competitiveness. Privatization, deregulation, the lowering of import barriers and a fixed exchange rate have been cornerstones of this effort. All these changes have dramatically reduced the role of the Argentine state in regulating the domestic market. NATURE OF THE BILATERAL RELATIONSHIP WITH THE UNITED STATES The United States and Argentina enjoy a warm and close bilateral relationship. It is so close and multifaceted that Vice President Gore referred to it during a recent visit as a virtual "alliance." The efforts of the Menem Administration to open Argentina's economy and to realign its foreign policy have contributed to the improvement in these relations. The interests of Argentina and the United States have coincided in an increasing number of issues. For example, Argentina voted in agreement with the United States on 80 percent of "important votes" in the United Nations in 1992, has backed many U.S.- supported candidates for high offices within international organizations and took the lead in securing approval of the OAS' 1991 Santiago Declaration on the Defense of Democracy. Argentina has also participated in many multilateral force deployments mandated by the United Nations Security Council. Argentina's policies on science and technology have also changed dramatically. In 1992 it signed a Bilateral Nuclear Cooperation Treaty and ratified the Treaty of Tlatelolco. Argentina also dismantled its Condor missile system. Argentina has also cooperated with the United States on the preservation of the environment and in combatting narcotics trafficking. Even as the political relationship improved, the economic relationship has flourished. Our bilateral trade has grown to such an extent that today the United States is Argentina's leading source of imports and rivals Brazil as Argentina's largest overall trading partner. These changes have been very important to the United States: in 1993, we enjoyed a bilateral trade surplus of $2.6 billion. The United States is also the preeminent source of capital, in the form of foreign direct investment, portfolio investment and loans. U.S. firms have won many of the tenders in Argentina's far-reaching privatization program. Given the breadth and diversity of our relationship, relatively few unresolved economic disputes exist between the two governments. Yet, the quick resolution of the those that do exist are very important to the further flowering of the bilateral relationship. One is the need to ensure adequate protection of intellectual property rights within Argentina by law. Lack of modern patent product protection for pharmaceuticals has cost U.S. firms hundreds of millions of dollars in lost revenues. Another is our request for Argentina to authorize more frequencies for U.S. air carriers to accommodate record-breaking passenger loads between the two countries. On the Argentine side, local producers seek improved access to our markets for their agricultural and other products. MAJOR POLITICAL ISSUES AFFECTING THE BUSINESS CLIMATE The Menem Administration has strongly encouraged private initiative through its privatization of state firms, deregulation of the economy and encouragement of foreign direct investment, which it sees as a necessity to the country's continued growth. Foreign investors are welcome in virtually every economic sector. The highly favorable investment climate notwithstanding, businesses continue to face occasional inconsistencies associated with governmental actions. A variety of cases exist in which U.S. companies which have invested in or traded with Argentina have been unfairly affected by what they consider to be the federal government's arbitrary and capricious enforcement of laws. Some cases endure from the old days of statist intervention by military juntas; others have occurred in the present environment, in which companies are buffeted by the sheer profusion of change. Although much has been achieved in such areas as deregulation and market opening, the government has been less successful in guaranteeing juridical security ("seguridad juridica," or the rule of law). The government itself recognizes that the administration of justice could be improved as well, to speed up court cases; the U.S. Government is providing assistance to promote the change. Social stability is also a potential issue of the future. Despite the outward measures of success -- a rate of economic growth second only to China's in the last three years -- problems have cropped up in the model, such as a high and increasing rate of unemployment, regional disparities in economic development and the lack of adequate social services. All of these issues might one day erode popular support for the program and force the government to slow the pace of change or even roll back some reforms. On the other hand, the public's memory of decades of increasing economic chaos -- which culminated in the hyperinflationary episodes of 1989-90 -- is still very fresh. Popular support for stability will likely outstrip popular discontent over the marginal issues associated with the stabilization program for quite some time to come.