(FORTUNE Magazine) – Probably no country in modern times has bounced back so well from the depths of despair as has Argentina. Blessed by nature but cursed by destructive political leadership since the days of Juan and Evita Peron, the nation of 33 million hit bottom in the late 1980s. Inflation roared at more than 4,000% a year, foreign debt soared, living standards plunged. Then voters elected as President a flamboyant rural governor, Carlos Menem. Surprise! A Syrian immigrant's son, he tossed out the statist precepts of his own Peronista party and -- following the example of Mexico and Chile -- began to promote a market economy. The government sold cash-losing state-owned industries, welcomed foreign capital, cut tariffs, and stopped the money-printing presses to fight inflation. Economic growth was up to 6% in 1992 and should hit 6.5% this year. The inflation rate has fallen to 17.5%, and the peso has been stabilized at one to the dollar. The recovery is still fragile, but Argentines seem committed to permanent change. If so, the country could become an important magnet for investment. To find out more about its prospects, FORTUNE managing editor Marshall Loeb interviewed Menem, 62, in his ballroom-size Buenos Aires office:

How goes the privatization? Never in the whole world has there been a swifter and more complete process of privatization. The most important privatizations -- the state-owned oil company, railroads, telephones, the airline, gas, electric power, water -- all these have been done. Steelmaking companies that were managed by the military have been privatized. TV stations, radio stations -- everything has been privatized. And we are also now considering the possibility of the prison system.

Why has this peaceful revolution of privatization, trade liberalization, and deregulation happened at this moment in history? And why should we believe it will continue? When I took office, Argentina was living in complete and generalized corruption and chaos. From that moment we started working very hard. The results are there to be seen. I believe there is no alternative to what we are doing after the end of the Cold War, after the tumbling of the Berlin Wall, and after the disappearance of the Soviet Union. Why did they disappear? Because the economic model that the Marxists proposed was completely contradicted by the facts. We came to the conclusion that our previous models, where the state was elephant size, could no longer continue. When I saw what was happening in Argentina ten years ago, I started to work on the model that we began to implement in 1989. And of course, I mainly took into account what was happening in the U.S. I also traveled to major European countries. Spain, France, and others have implemented a completely liberal and modern economy, and they have grown. And if this happens in those countries that do not have the physical size or the natural resources that Argentina has, why not in Argentina too? Argentina now has a deep and complete reform so that the state will fulfill only four duties -- education, public health, justice, and security. The rest is for the private sector. As in every home, in every family, we need to have a healthy financial situation. So we have balanced our fiscal accounts, and we now have a budget surplus. We have been able to pass a law that creates not only stability but also currency convertibility. There is not one single peso in circulation that does not have the backing of our ((hard currency)) reserves. When we took office, we had only $60 million in our central bank, but the currency in circulation was over $6 billion. So we didn't have a real currency. But now we have more than $12 billion in gold and foreign currency ((in reserves)). And for those who want to operate in dollars in Argentina, they can do so. They can open checking accounts in dollars. They can pay in dollars. There's no problem.

What role do you see Argentina playing in Latin America and in the world at large? We hope to become one of the best countries of Latin America and the world. But our natural resources are not enough. We have to prepare the necessary human resources so that we will quickly take our place within the world of knowledge. This is the great advantage that Japan and Germany have. It enables them to balance the huge size of the U.S. You know that during the 1970s, the GNP per capita of the United States was 16% higher than that of Japan and 4% higher than Germany's; now it's lower. The U.S. made new products, but Japan and Germany concentrated on the creation of new processes from the point of view of knowledge, science, and technology. Japan and Germany, with fewer natural resources, have obtained an advantage that helped them compete with the U.S. A great economic battle is now beginning among the industrialized countries.

And Argentina? Argentina plans to have a part in this battle. That is why we expect to make quick progress in the field of knowledge, to train our people. We want progress in science and technology, computing -- everything that has made it possible for small countries to become great countries. It is difficult to explain why Argentina, which has so much wealth, is a poor country, and Japan, which has absolutely nothing, is now wealthy. Germany imports raw materials for $250 billion a year. The Germans apply new processes in using those raw materials in manufacturing, and they export more , than $300 billion of goods. That is what Argentina would like to do, but with one big advantage. We have the raw materials; we don't need to import them.

What specific kinds of investment would you like to see from abroad? Everything for the production of goods and services. Argentina is an open country. There is full freedom to invest.

You spoke twice by phone with Bill Clinton after he was elected. What did you tell him, and what did he tell you? As soon as I learned the results, I called the then President-elect, Mr. Clinton, and President Bush. I told Mr. Clinton that in Argentina he would find a true ally. And that I hoped the policies implemented by the U.S. toward Argentina and Latin America would continue along the same lines. Mr. Clinton said that not only would he do that, but he would also like to expand them, improve them, and make them even deeper. Never before have relations between the U.S. and Argentina been better. We expect to maintain this kind of bilateral relationship. Taking into account our previous history, I decided to eliminate all those obstacles that could cause problems in the relations between the U.S. and Argentina.

Would you like to negotiate a free-trade treaty with the U.S.? That's what we are expecting. The beginnings of a proposal have been prepared. In Argentina, conditions already exist to establish a free-trade zone with the U.S.

Do you also think that Argentina should join in the North American Free Trade Agreement (NAFTA) among the U.S., Canada, and Mexico? This is an important possibility. What is fundamental in all of this is that our economic philosophy, the market economy, is similar to the one applied in Canada, the U.S., and Mexico. If this has all happened between Canada, the United States, and Mexico in NAFTA, why not with Argentina?

What other steps can be taken to increase trade between Argentina and the U.S.? I believe that this will be the result mainly of the private sector. The state already has established the rules of the game with modern legislation. One example is an agreement to guarantee investments by the U.S. Also, the process of privatization has made it possible for U.S. capital to have a very firm footing in Argentina. A very big American company, Enron, has just won the right to own and operate a natural gas pipeline system in the southern part of the country. There are also U.S. companies involved in the privatization of the railroads, in the oil sector, and in communications. This would not even have been dreamed of a couple of years ago.

What steps have you taken to reduce Argentina's foreign debt, and to what extent does it remain a serious problem? It was serious when we didn't even know how much we owed, at the domestic or international level. But now everything has been put in order. We now know exactly what we owe and how we must pay it. So in that sense, that problem has already been solved. From the sale now of the state-owned natural gas company, we have received some $1 billion in cash and $3.5 billion in foreign debt reduction. And we are fulfilling all our commitments as to our foreign debt. So Argentina, which was an unreliable and risky country, an unstable country, has now become a serious, responsible, and reliable country.

Do you expect to substantially narrow that debt further in the next few years? Yes, of course.

Are you taking steps to guarantee that the peso will not be devalued? Our growth of hard currency reserves gives us the possibility to pay what we owe, and leads us to the certainty that our peso will not be devalued. As we manage to reduce inflation -- which is not high now but which we should try to eliminate fully -- things will be improved.

You are not allowed to succeed yourself when your six-year term expires in 1995. How can the world be sure that the reforms you have made will continue? Because never can we go back to the past. Politicians in Argentina are able, talented, intelligent people. They know that a single step backward would be suicidal. This will not happen. And in the year 2001, I will once again be a candidate for the elections. Because if I give the power to another President ((for one term)), I can return after that. It is also true that from the outside you can exert control over those who are ruling.

A number of government employees have been laid off as a result of your reforms. Has the new economic stability prompted private business to expand operations in order to hire them? Yes, of course. If these people did not start their own small businesses with the severance pay they received, then they had the possibility of working in private companies. In 1989 the unemployment rate was nearing 14%. It is now under 5%. In fact it is even less than that because labor legislation is still very strict and ties the employer to the employee. Even if the employee is useless, an employer cannot fire him without giving him very high severance pay. Because of that rule, there must be some 3% of the people working off the books. We have sent a labor reform bill to parliament that will clear up this problem. When it passes, the unemployment will probably disappear.

What are your expectations for the Argentine economy in 1993? Growth will be not less than 7%, and inflation will be not higher than 5%.

Really, 5% inflation? That is what my technicians in the Ministry of Economy have calculated. I myself would be the happiest man on earth if we do not surpass 9%. But on the other hand, the growth in the economy will be more than 7%. For December the inflation rate was 0.3% in retail prices, and minus 0.7% in wholesale prices.

Is there some message that you would like to convey to managers around the world? Yes, of course. Argentina is a country to invest in, with all the necessary guarantees. Argentina sees no difference between domestic and foreign capital. This is a country where you can freely invest and have a very good profit.