ARGENTINA: New Gov’t Alliance with Cavallo as Economy Chief

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Mar 20 2001 (IPS) - Domingo Cavallo was sworn in as Argentina’s new Economy Minister on Tuesday and immediately demanded extraordinary powers so that he might keep his promise for a rapid economic recovery, which he considers the central objective of his office.

With the addition of Cavallo to the Cabinet, most of the members of the governing Alianza party that brought Fernando de la Rúa to the presidency are now, in fact, outside the government.

The new Cabinet has been rebuilt with a sector of the governing coalition’s leaders who had previously staked their bets on a break-up, and with associates of the new right-leaning minister.

De la Rúa has thus given up a broad swath of the political arena to a sector that had until now been in the opposition, though he reiterated his support for his allies, whether from the Radical Civic Union – the party to which he belongs – or from the Country of Solidarity Front (Frepaso).

Cavallo, who ran against De la Rúa in the 1999 presidential elections, won just eight percent of the vote in that contest.

Following intense negotiations that lasted until the last moments before Cavallo’s swearing-in, the president did not invite any Frepaso leader to take part in his restructured Cabinet. Even his former vice-president Carlos Alvarez, leader of the party, was left out, despite Cavallo’s suggestion to make him Cabinet chief.

So the “national unity” government De la Rúa had announced Sunday has been limited to an alliance with Cavallo. The move is a tenth anniversary replay of then-president Carlos Menem’s action two years after taking office in which he designated Cavallo to the same ministerial post in 1991.

Alianza leaders indicated that naming Cavallo as Economy Minister underscores the impotence of a president who won the elections with a centre-left platform, one that set him apart from the neo-liberal model of market opening and privatisation driven by Menem and Cavallo in the 1990s.

“There will be no monetary or exchange-related surprises,” was Cavallo’s first sentence as Economy Minister, this time around. Giving even greater reassurances, he added that the currency board regimen that he himself installed in 1991 as Menem’s minister “will not be abandoned, ever.” The system pegs the Argentine peso to the US dollar.

The need to clear up any remaining doubts about the opening of financial markets led Cavallo to make his first declarations before his swearing-in, and even before the president had definitively announced his designation.

De la Rúa had said Cavallo would be Cabinet chief or Economy Minister, but had not clarified which.

While awaiting the decision, Cavallo had appeared before the media alongside Ricardo López Murphy – who announced his resignation as Economy Minister late Monday evening – and said he would ask Congress for special powers in order to launch a series of rapid measures to fight “excessive bureaucracy, evasion, corruption, contraband and waste.”

The reaction of the financial markets and of industry was positive, as was that of many analysts and consultants who had judged López Murphy’s approach as too ‘fiscalista.’

In contrast, nearly all trade unions voiced their rejection of Cavallo as head of the economy ministry.

The union representing teachers and professors, which began a 48-hour strike Tuesday with high levels of participation, decided to maintain the protest until Cavallo repeals the austerity measures López Murphy had announced, a policy package that called for deep cuts in public education spending.

The two leading dissident union centrals have called a general strike for Wednesday.

Approximately 100 universities taken over by students early last Saturday in response to the austerity package were still in their hands Tuesday. The General Confederation of Labour, meanwhile, which is more inclined to dialogue with the government, was the only union organisation that called off its protests.

Last Friday, López Murphy announced an adjustment package of 2.0 billion dollars that was based largely on cutting expenditures for education, a move applauded by investors and business leaders, but which unleashed a wave of protests by civil society.

The parties that make up the Alianza refused to support the López Murphy programme, and three ministers resigned in protest, while Frepaso withdrew its frontline of officials in the government.

Frepaso was thus left without representation in the government, despite its previous role in the coalition that put De la Rúa in the presidential seat in December 1999.

Given the lack of support for his economy minister, on Sunday De la Rúa called Cavallo to join the government, without determining for what post, in order to demonstrate credibility before the financial and business world.

The overwhelming rejection by political and union forces to López Murphy’s austerity measures triggered his Monday-night resignation.

“I played the role of messenger of bad news,” commented the outgoing minister Tuesday, insisting that his programme “was moderate” given the serious circumstances Argentina is facing, with important deadlines for the foreign debt rapidly approaching and a recession that is already in its 34th month.

Cavallo, who formed his own party (Action for the Republic) after leaving the Menem government in 1995, promised Tuesday he will adjust public spending by 3.0 billion dollars, but instead of making cuts in education, like his predecessor, he will instead focus on areas like tax evasion and contraband.

The new minister said there will be no major announcements or policy packages, but some of his colleagues made it known that study is underway considering a reduction of taxes and renegotiating the foreign debt with Stanley Fisher, of the International Monetary Fund.

Though Cavallo exorcised the phantom of a halt in debt payments if he is not granted special powers – as is stipulated in the constitution regarding emergency situations -, the Justicialista (Peronist) Party, the leading opposition force, has said it will not give the new minister “a blank check.”

But the Peronist lawmakers and governors agreed to daily legislative sessions in order to quickly handle all the legal initiatives the new minister needs for keeping his first promise: the reactivation of the Argentine economy.