Dear Mr(s). President: Argentine business want credit, lower taxes and stability from their next government. (Economy).

Even as the Argentine economy boomed during the decade-long presidency of Carlos Menem in the 1990s, Jorge Scotto had to make sacrifices to keep his porcelain factory, Porcelana Dresden, afloat. He was forced sell a large field and a campground on the coast and give up yearly trips to Europe with his wife.

Despite the country's economic collapse, Scotto these days is busy, firing up a second oven that will crank out 1,000 plates a day. The output of his ovens will replace its once-fiercest competitor in the country's supermarkets: cheap imports from China.

Scotto's 30-year-old factory, on the outskirts of Buenos Aires, is recovering largely because of the sharp devaluation of Argentina's currency. During Menem's time in office, the peso was pegged one-to-one to the dollar. As the dollar grew stronger on international markets, the peso appreciated too. Productivity didn't rise fast enough to prevent Argentina's economy from becoming steadily less competitive.

During these years, importers could sell Chinese coffee cups for US$0.17 a piece, a price that Scotto couldn't match without losing money. The lowest he could go was $0.25, given the strong peso and Argentina's sky-high labor costs--the highest in Latin America--hefty utility costs and punishing taxes. "For industry, the Menem era was horrible. Before, Argentina manufactured almost everything. It was all 'Industria Argentina," Scotto says. "Under Menem, things started to deteriorate because the fixed exchange rate left us at a disadvantage to imports. I couldn't compete."

Now, that's all changing. The peso has nose-dived, falling 70% against the dollar and sharply curtailing suddenly expensive imports. Scotto is taking on more workers. He is lifting monthly production to 150,000 units, the same level as in the 1980s and double that of the 1990s.

Argentina's industrial rebirth began in the middle of 2002 and has continued in 2003. Industrial production rose 17.4% in the first two months of 2003 compared to the same period last year led by textiles and metals, according to the government. The economy, which fell 10.9% in 2002, is expected to grow as much as 4% this year.

Encouraging the economic revival will be a focus of the next government, which takes office May 25 following the April 27 general election. There are big challenges awaiting the new president, and it will take years for Argentina to recover from its economic collapse at the end of 2001.

Doubters. Daniel Seva, co-owner of Odimet, a manufacturer of metal doors, fences and window frames and his partner Ricardo Deocare, don't believe the next president can spark an economic expansion anytime soon. They cut back their metalworking business in preparation for elections, renting out a quarter of the factory and reducing costs. "We don't expect a miracle from the next government," Seva says. "All we want is for them to keep things stable."

Businesspeople blame the crash on Menem's policies, which wiped out chronic hyperinflation and brought in capital from abroad but left Argentina's industry hobbled. Nearly 25% of Argentines seek work, and more than half of the country's 36 million are officially poor.

What must the new government do to achieve sustainable economic growth? Make it a reliable place for doing business is a start, says Encarnacion Ezcurra, a manager of Southern Winds, the second-biggest airline here in terms of passengers.

To start, politicians should recognize that policy changes can wreak havoc on industries, Ezcurra says. So, she adds, be prepared to provide compensation like tax breaks or subsidies to the affected industries, Jet-fuel prices quadrupled to $1.10 a liter, on international oil prices and the devaluation. With revenue in pesos and little room to raise prices, another Argentine carrier, Dinar, grounded most flights in March. "We want stable conditions so that we can make long-term business plans and stick to them," Ezcurra says.

Power companies are in a similar bind. After devaluing the peso, Duhalde converted utility rates to pesos from dollars and banned increases to stem inflation, creating havoc on the balance sheets of phone, power and water companies. Without higher rates, Argentina is heading for an energy crisis within the next two years, predicts Orlando Ramati, head of the main electricity distributors' association. Increasingly frequent blackouts, he says, will slow economic growth.

Business owners also say they want the next government to speedily reform the muddied tax and social security system. Eduardo Lerner, president of Producciones Publiexpress, a family-owned magazine publisher, had to contend with a 30% drop in advertising and 40% decline in circulation of weekly magazines like Quien and Pronto Semanal. He found his hands tied when it came to cutting costs. Union rules require severance packages for journalists to start at eight months. Last year. the government ordered companies to double severance packages for layoffs.

Grain pain. Heavy taxes are stifling investment in agriculture, one of the country's main industries, says Adrian Selzter, an analyst at grain brokerage Granar in Buenos Aires. There is a 20% tax on exports. For supplies, whether imported or domestic, farmers pay a 21% value-added tax. When they sell their grains, they can recoup half of the tax. The other half is a fiscal credit that takes years to get back. This policy keeps money from farmers they could use to expand seeding, says Selzter. Get rid of these taxes and farmers would boost production of corn, wheat and soybeans, he says.

Santiago Gallichio, an economist at Buenos Aires think-tank Exante, reckons the next government could revive consumer spending, too, by scrapping some social security charges. If employers put that money into salaries instead, the economy would get a major boost, he says, since consumption accounts for 70% of Argentina's gross domestic product.

Meanwhile, tax evasion is too easy--and profitable--says Alejandro Zelaschi, who runs distribution companies for supermarkets in Buenos Aires and Cordoba. Companies usually wait for a tax amnesty and pay with a discount of 20% to 50% in monthly, zero-interest installments stretching over several years. "Why pay on time?" says Zelaschi.

Reforming the tax system won't be easy, though. The government needs money to repay its $155 billion debt.

Another challenge is legal reform, says Flor Farber of Keepy, a family-run company that makes and sells children's clothing. "If buyers don't pay, then nothing happens to them. It is too costly and time-consuming to chase after non-payers," she says. "Pursuing them in the courts takes two to three years."

The next government must also return credit to the economy. With the banking system in tatters, there is little prospect for fresh loans for most companies--unless you're willing to pay 6% monthly interest, says Farber. "I can't. That would eat away all my profits," Farber says.

To survive, Farber manages her cash very tightly. "We have to self-finance our business for two months with the risk that the clothes we make may not sell. Before you could buy materials and pay three months later, after you had sold the merchandise," she says. "Not anymore."

Outgoing President Eduardo Duhalde has managed to stop the country's economic plunge, but is the new government ready to make real change? Argentine business is about to find out.

[GRAPH OMITTED]