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Ricardo Leiva, Professor, School of Economic Sciences, University of Navarra, Spain

Cristina Kirchner and bad reputation

Fri, 20 Apr 2012 08:11:13 +0000 Published in Sur Newspaper

By illegitimately appropriating what does not belong to her, President Cristina Fernández de Kirchner has ended up squandering all that remained of her country's reputational capital, a crucial asset for which companies and nations compete today to gain the trust of investors. It is because of the good reputation of certain places and companies that we choose their products and brands over others that are less prestigious. In this sense, reputation can have the same value as a signed contract: it is a guarantee and insurance to reduce our uncertainty as consumers and suppliers.

Like all intangible assets, reputational capital is fragile, and must be managed with the same care as physical and financial assets. In fact, its proper management has become one of the greatest strategic challenges for politicians and business people as the environment becomes increasingly competitive. There is so little money available in the world and so many places fighting to keep it, that any threat is perceived as an incentive to put dollars and euros somewhere else more attractive and friendly.

Reputation has become one of the greatest rewards companies - and countries - can get for doing the right thing. For the same reason, it is one of the most vulnerable and difficult resources to protect. Building a good reputation takes many years of work and effort, as it is slow to form in the minds of stakeholders. It cannot be bought or copied, and it is more difficult to maintain than to create. Damaging it costs nothing. Rebuilding it, on the other hand, usually requires a titanic and very costly effort.

Argentina will see all this again in the years to come. Unfortunately, Cristina Kirchner's demonstrated ignorance of how businesses, investors, and markets work has been the hallmark of the political class that has governed Argentina since the end of World War II, and is what explains, in large part, why that great country has become a textbook case of economic profligacy and imbalance.

According to Harvard Professor of Economic History Niall Ferguson, "Argentina's twentieth-century economic history is a demonstration internship that all the world's resources can be reduced to zero by bad financial management ." Not for nothing did Argentina go from being the sixth richest country in the world in the 1880s to a disaster a hundred years later. Before World War I, Argentina was still among the top ten economic powers on the planet, with a gross domestic product higher than that of Switzerland, Belgium, the Netherlands and Denmark, and growing faster than the United States and Germany. It received more foreign capital than Canada, and "could legitimately aspire to be a sort of equivalent of the United Kingdom, if not the United States, in the southern hemisphere" (Ferguson).

All that began to gradually collapse in February 1946, with the coming to power of Peronism, the same movement to which Mrs. Kirchner belongs. Since then, Argentina has fallen behind its neighbors. In 1970, for example, its GDP was still the same as in 1959. Inflation raged steadily, reaching double digits between 1945 and 1952, between 1956 and 1968, and between 1970 and 1974. It reached triple digits between 1975 and 1990, and exceeded 5,000% in 1989. In return, the country became accustomed to defaulting on its commitments and fail the payment of its debts. Argentina has stopped paying its foreign creditors in 1982, 1989, 2002 and 2004, and has defaulted on its energy contracts with neighboring countries such as Chile -which buys gas from it- and now expropriating Repsol.

It will not necessarily be Mrs. Kirchner who will pay the consequences of this arbitrary breaking of the rules of the game. After all, her family has increased its fortune by more than 700% since Nestor Kirchner came to power, currently totaling more than $60 million. It will be the stoic Argentine people, once again, who will suffer the destruction of the most valuable capital a person, group or country can have, masterfully portrayed by Shakespeare in Richard II: "The most valuable treasure to be found in these troubled times is an undefiled reputation; when it is lost, men are left only with mud and tinsel".