A Province That Works.(Mendoza, Argentina)

In 1835 Charles Darwin described the Argentine province of Mendoza as having a "sad and disagreeable aspect," and he noted that the population in recent years had suffered a "fall in prosperity." Few people could dispute the famed scientist. Mendoza, a western region wedged between Chile and the fertile Pampas, has always been a tough place to live. It's got a dry climate, cold winters and is prone to earthquakes. (An 1861 temblor destroyed the province's capital, also called Mendoza.) But the province's harsh living conditions bred a resilient, "do or die" attitude among its inhabitants--a work ethic that seems closer to Chile's Germanic influence than Argentina's Italian flair. Mendoza, in fact, was part of Chile until the late 18th century. Over time that tenacity enabled Mendocinos to carve out a decent living from the hardscrabble environment.

These days Mendoza is doing even better. Of Argentina's 26 provinces, it's one of the few that is flourishing. That's a relative term in a country that suffered through a major depression in 2001 and 2002, but the province is showing that some places in woebegone Argentina can manage their debt, attract foreign investors and create jobs. Though remote, Mendoza boasts one of Argentina's lowest unemployment rates (9.3 percent, 40 percent lower than the national figure of 15.6 percent) and the median income of its 1.5 million people is one third higher than the national average. Though water is precious, Mendoza has become a major exporter of fruit (apples, peaches, plums, pumpkins) and vegetables (soybeans and corn). Dallas-based businessman Stewart Elliott--who's partnered with Ward Lay of the Frito-Lay dynasty to sell wine from the province--says that Mendoza "has the optimum conditions for foreign investment," among them, low costs, few regulations and hardworking people. "In the desert, it's very hard to get something from nothing," says Francisco Seufferheld, a Mendoza-based llama farmer, investor and entrepreneur. "Other provinces call us the Venetians of Argentina because we see opportunities where others don't."

How has the province set itself apart even while the rest of the country has floundered? One reason is that Mendoza values fiscal responsibility. During Argentina's worst-ever economic crisis, the province paid off its bondholders--though it was late doing so on several occasions. Unlike several Argentine provinces, it has never defaulted on its debt. The province's deficit as a percentage of government revenues has fallen to 2.4 percent, down from 15 percent to 24 ...