ECONOMY-ARGENTINA: Pessimistic Outlook for Rest of 1999

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Jul 22 1999 (IPS) - Argentina’s economic recession grows deeper, unemployment worsens and even the most timid predictions for recovery say “wait until next year.”

Beyond the economists’ projections, there is a general feeling among the Argentinean population that the crisis is silently sliding downhill and that improvement cannot be expected until after the presidential elections at the end of the year.

Numerous businesses had expected to see some recovery in June’s sales, but their hopes were frustrated when most Argentineans – who still have jobs – spent their mid-year bonus (half a month’s salary) on paying off debts.

In addition, the closing of bank accounts increased nearly 30 percent during the first half of this year compared to the same period in 1998.

Official projections indicate that the economy will fall by 1.5 percent this year. But Argentinean economists are not as optimistic. They expect it to drop by three to five percent, and say that recovery will not begin until next year.

The decrease in consumption is predicted to close the year between 2.0 and 4.3 percent, according to several studies. Domestic spending will fall by 8.0 to 15 percent due to investor caution resulting from the uncertainty surrounding October’s elections.

Jurgen Weller, a lead economist at the Economic Commission for Latin America and the Caribbean (ECLAC), says the social-economic situation in Argentina is “very worrisome” and that recovery will only be possible in next year’s first trimester – not during 1999 as the government predicted.

As a consequence of reduced economic activity, unemployment rose from 12.4 to 14.5 percent between October 1998 and May 1999, and, according to business analysts, it could reach 18 percent by the end of the year.

The symptoms of economic deterioration began to appear in Argentina with the 1997 crisis in Southeast Asia, but the devaluation of the Russian ruble in 1998 made it worse, and the depreciation of the Brazilian real in January accelerated the recession.

The fall in prices of agricultural products, caused by reduced demand in Asia and Brazil, also contributed to the recessive picture. The competitive position of the Argentinean economy in the international market, say economists, is an open debate.

The farming community, which has already held two protests this year, is planning another on Wednesday at the Plaza de Mayo, in front of national government headquarters, to express their discontent with the government’s economic policies.

Rural populations are suffering from low agricultural prices and the reduced exports to Asia and Brazil, but they are also hurt by the increased tax pressures that pushed tens of thousands of small- scale farmers out of the system a few years ago.

There is a convergence of factors preventing the economy from finding a foothold, but these factors are fundamentally political, say analaysts, as elections to choose president Carlos Menem’s successor are to be held October 24.

According to polls, Fernando de la Rua, the mayor of Buenos Aires, is favoured to win. Leader of the Alianza, a centre-left coalition, De la Rua is expected to continue the current monetary regime, and to improve employment rates.

De la Rua’s competition is the governor of Buenos Aires province, Eduardo Duhalde of the governing Judicialist Party. Duhaldo was running in first place in May’s polls, but public opinion changed after his declarations regarding the nation’s foreign debt.

Argentina’s public and private foreign debt stands at over 130 billion dollars, including middle and long term.

Duhalde suggested renegotiating the nation’s debt payments in a grandiloquent declaration that led to a 8.7 percent fall in the Argentinean stock exchange during the second week of this month.

Presidential elections are to be held in October, and the winner is to take office in December, but the public is not holding its breath for economic recovery before the first months of next year.