Scandal burdens S. Carolina governor in economic task

South Carolina Governor Mark Sanford pauses as he speaks to the media about his secret trip to Buenos Aires, Argentina and admits to an extramarital affair at the State House in Columbia, South Carolina June 24, 2009.

ATLANTA (Reuters) - The U.S. state of South Carolina faces economic problems that would tax any governor, let alone one embroiled in a sex scandal and fighting for his political survival, economists and politicians said on Friday.

Governor Mark Sanford admitted this week to an extramarital affair with a woman in Argentina, and while he stepped down quickly as chairman of the Republican Governors Association, he seems set to soldier on as South Carolina's chief executive.

But he runs a state saddled with an unemployment rate of about 12 percent, one of the highest in the country, a declining textile industry and a struggle to reform an education system vital to producing the high-quality workers it needs.

The scandal has likely ruined any hopes Sanford might have had of running for president in 2012 on a Republican ticket. Questions over whether he misused state funds to pursue his overseas extramarital relationship could damage his credibility to try to turn around the Southern state's economy.

"We really do need leadership. This state could flounder," said economics professor Douglas Woodward of the University of South Carolina.

Facing calls to resign from inside and outside the state, Sanford gave no hint during a Cabinet session on Friday that he would step down. Instead, he repeated the effusive apologies he made during a tearful news conference on Wednesday when he confessed his marital infidelity.

"I wanted generally to apologize to everyone of you all for letting you down," Sanford told Cabinet members at the session carried on local TV, in which issues such as hurricane preparedness, Medicare, insurance and tourism were discussed.

The state's economic challenges reflect the worst U.S. recession in decades. But Sanford, who backs a limited government role in the economy, has a mixed record of cooperating with powerful state legislators on economic measures, exacerbating some of South Carolina's problems, analysts said.

"My biggest criticism of the current governor ... has been the inconsistent work on economic development. Few new jobs have been created. In fact, we have lost jobs," said former Governor Jim Hodges, a Democrat whom Sanford defeated in 2002.

Battles between the governor and the state assembly, which is controlled by fellow Republicans, have marked Sanford's six years in office and the Legislature has overturned a relatively high percentage of his vetoes, analysts said.

Sanford gained prominence this year by opposing Democratic President Barack Obama's economic stimulus bill and rejecting $700 million of South Carolina's portion of the funds on grounds it would undermine the state's fiscal stability.

Democrats and some Republicans in the state criticized Sanford for rejecting the funds and the state Supreme Court this month overruled his opposition.

ENTRENCHED ECONOMIC WOES

One open question is whether a weakened governor in his final two years in office would be better than his Republican lieutenant governor, Andre Bauer, who would take over if Sanford resigned, said Woodward.

Bauer is not an ally of Sanford and criticized his six-day absence starting last Thursday when, without informing aides or his security detail, he slipped away to Argentina to visit his mistress. Sanford was forced to confess his overseas affair when his secret trip to Buenos Aires was discovered.

But Bauer said the governor should remain in office.

The Sanford scandal delivered another blow to the fortunes of the Republican Party, which has been struggling to recover political momentum since the November election that put Obama in the White House.

Last week, Nevada Senator John Ensign, another potential Republican presidential contender in 2012, announced he had an affair and resigned from the Senate leadership.

College of Charleston political science professor David Mann said South Carolina's economic woes were entrenched and Sanford would have little opportunity to help remedy them since the state Legislature had recessed until January.

"Given Sanford's economic ideology, he wouldn't do anything anyway. ... His philosophy is government doesn't do business and government leaves business alone," he said.

"That's not working now. We're a poor state," Mann added.

According to projections, 85 percent of future jobs in the state will require college or technical level education but only 60 percent of students meet those requirements, said Jim Fields, executive director of the Palmetto Institute, a nonpartisan research foundation in the state capital, Columbia.

"When we (the United States) go into a recession, South Carolina goes deeper and stays longer. The challenges that the governor will face in the next 18 months revolve around jobs and the economy," Fields said.

(Additional reporting by James Scott in Charleston; Editing by Pascal Fletcher and Peter Cooney)