Just before Cristina Fernandez’s victory in Argentina’s recent presidential elections, author Marcos Aguinis told me in Buenos Aires, “Some people think she might be a bit better than her husband because she likes haute couture and meeting the rich and famous—but who knows.” He was referring to the hope that her well-known penchant for all things glamorous will keep the president-elect, who is also a former senator, from being an anti-American and globaphobic populist like her husband, outgoing president Nestor Kirchner.

Glamour, however, will not prevent the crisis that will hit Argentina if she does not reverse her husband’s policies. In classic Peronista form, the Kirchner couple has engaged in political patronage, manipulated the country’s institutions, and encouraged radical left-wing groups to take center stage while presiding over a serendipitous economic boom.

What the Kirchners think is their “new model” for Latin America is essentially the short-term reward resulting from the massive devaluation of the currency a year and a half before Nestor Kirchner took office, the skyrocketing prices of the country’s commodities, and the president’s decision to pay back barely one-third of the face value of $140 billion worth of government debt paper.

The prices of Argentina’s cereals, fuels and minerals have experienced a double-digit rise this year, continuing a trend that, together with cheap tourism, has helped generate GDP growth rates of between 7% and 9% in the last four years. As the world’s fifth largest exporter of foodstuffs, Argentina is having a field day with the voracious demand coming from China and other nations. At times, Argentineans seem to be reliving their golden 19th century days when their abundant meat and cereal exports attracted millions of Europeans to Buenos Aires in search of the cornucopia.

But these blessings conceal two fundamental problems. The first is a dysfunctional institutional environment. It did not start with the current administration but the presidential couple has made it worse. The second problem is a byproduct of the first: An economy riddled with political bottlenecks that are consuming the capital accumulated in the previous decade, and fueling inflation.

The Kirchner presidency has systematically undermined checks and balances. Thanks to a law that was passed with the support of his wife in the Senate, Mr. Kirchner changed the structure of the Magistrate Council and placed the judiciary under Peronista control. He also brought into the fold the crushing political machinery of the Buenos Aires province, which accounts for almost 40% of the national vote and used to be in the hands of former president Eduardo Duhalde, a Peronista rival. That was achieved by having Cristina Fernandez run for the Senate seat of the Buenos Aires province as opposed to the seat representing Santa Cruz.

Mr. Kirchner has also used his majority in Congress—now expanded by his wife’s victory in the presidential elections—to obtain “emergency powers” that have given him personal discretion over the entire budget. In traditional corporatist fashion, Cristina is now speaking of a “social pact” by which the government will negotiate laws and policies with groups supposedly representing civil society but in reality working to keep the Peronista clientele happy.

Then there is the economy. On the surface, things couldn’t be better. After a crisis that turned a middle-class country into a Third World nation, Argentina has seen about 11 million people pull out of poverty—i.e. go back to their living conditions of the 1990s. By raising public spending by 50% annually and wages by 40% in the last four years, keeping interest rates low, controlling half the prices that make up the consumer price index, and nationalizing or creating state enterprises in eight major sectors of the economy, the government has achieved a populist artifice. As the results of the presidential elections show, Argentineans are not buying this illusion of prosperity in the main urban centers (the nation’s capital, Cordoba, Santa Fe, and others), but the rest of the nation is.

The real story is that investment is very low and inflation very high—and the social demands of a population that has been promised a paradise are infinite. Although Mr. Kirchner has tried to conceal inflation figures by replacing the head of the national statistics institute, no one I talked to in Argentina thinks inflation is below 20%. The energy crisis, a consequence of Mr. Kirchner’s decision to continue to freeze prices at one-third of market value and therefore discourage investment at a time of rising demand due to the economic bounce, is causing havoc. Foreign direct investment has dropped by about 30% in the last three years, whereas in Chile, Argentina’s next-door neighbor, it has risen by almost 50%.

This amounts to the squandering of a marvelous opportunity for a country whose past prosperity, relatively educated population and political gravitas in the region should have granted it a leading role in Latin America in this new millennium. The fact that a sophisticated woman will be the next president should have been a reason to rejoice in a part of the world where politics has been a notoriously “machista” enterprise. But it will take a miracle, i.e. an act of political treason by Cristina against her husband’s legacy, to avoid the iceberg for which Argentina’s Titanic is headed.

Jorge Luis Borges, Argentina’s late poet, used to say, “Peronismo is neither good nor bad—it is incorrigible.” Will Cristina’s love of the good life serve as an antidote to Peron-style populist socialism? Although the chances are extremely slim—she has announced that nine of her husband’s ministers will stay on to serve in her cabinet—let us pray that Cristina proves Borges wrong.

Alvaro Vargas Llosa Send email Alvaro Vargas Llosa is Senior Fellow of The Center on Global Prosperity at The Independent Institute. He is a native of Peru and received his B.S.C. in international history from the London School of Economics. His weekly column is syndicated worldwide by the Washington Post Writers Group, and his Independent Institute books include Lessons From the Poor: Triumph of the Entrepreneurial Spirit, The Che Guevara Myth and the Future of Liberty, and Liberty for Latin America. Full Biography and Recent Publications