ECONOMY-ARGENTINA: Gov’t Turns Deaf Ear to Alternative Proposals

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Aug 17 2001 (IPS) - In the midst of a severe financial crisis, the Argentine government is holding tight to its free- market economic policies, while refusing to even consider alternatives suggested by trade unions, business associations and the Catholic Church.

President Fernando de la Rúa, who took office in December 1999 after campaigning on a centre-left platform, and his team have followed fiscal adjustment policies aimed at regaining investor confidence, bringing interest rates down and reviving the economy.

But seven austerity plans in 20 months have failed to pull the economy out of its three-year recession, curb the rise in unemployment – which currently stands at around 16 percent – or rebuild confidence.

The government’s swerve to the right, with its austerity measures, led to the rupture of the centre-left coalition. Nearly all of the left-leaning groups that backed De la Rúa’s candidacy in 1999 have abandoned the ruling coalition, in almost every district, in the run-up to the October legislative elections.

Meanwhile, the government of De la Rúa, with its right-wing Economy Minister Domingo Cavallo, is standing firmly by its policies.

The immediate aim of the government is to drum up further financial support to strengthen the banking system, shore up the reserves that back the money supply, and compensate, at least in part, the flight of capital withdrawn from local banks in the latter part of July by account-holders fearing a debt default and devaluation.

The search for fresh emergency funds led the De la Rúa administration to commit itself to drastic cuts in public spending last month.

The “zero-deficit” austerity plan means the state will only spend what it collects in taxes each month. From those receipts, it will first deduct the amount to be paid in interest to the holders of foreign debt bonds, and with the remainder it will pay state salaries and pensions, which will be cut each month as needed.

For example, the salaries of public employees and state retirement benefits were reduced 13 percent in July, sparking a new ongoing wave of nationwide protests and roadblocks.

The International Monetary Fund (IMF) worried this week that the financial aid sought by Argentina would not ward off a debt default.

IMF officials, who are still negotiating with representatives of the Argentine government in Washington, see a zero-deficit policy as non-viable at a time when this Southern Cone country’s Gross Domestic Product (GDP) has fallen 10 percent in three years.

The crisis affects nearly every sector that produces goods or services, while consumption – even of foodstuffs and other basic items – has slumped, increasing numbers of businesses have been going under, and the proportion of bad loans has soared.

“We are not only protesting because they cut our wages, but also because the children will not receive school lunches due to the fact that for three months the government hasn’t paid suppliers, who have already warned they will cut off their services at the end of the month,” a teacher from Buenos Aires province told IPS.

Proposals for mitigating the social impact of the government’s economic policies that were set forth a year ago by the Congress of Argentine Workers (CTA), one of the country’s three central trade unions, have failed to awaken an echo in the government or opposition parties.

The CTA called for unemployment insurance that would amount to monthly stipends of 380 dollars for the heads of households, plus 60 dollars per school-age child. It suggested resurrecting defunct taxes on banks and supermarkets, and on utilities that were privatised in the 1990s, in order to obtain the eight billion dollars that would be needed to implement the plan.

According to the trade union, the funds would go to families with no capacity for savings, and would thus be immediately refunneled into the market, triggering a “virtuous circle” of rising consumption, production and employment.

The CTA is collecting signatures with the aim of putting its initiative to plebiscite at the October legislative elections.

The Argentine Industrial Union (UIA) formulated its own recommendations a month ago, which would give priority to the internal market, because the business association believes that the only way to achieve a balanced budget is by reactivating and strengthening the domestic market.

“A resurgence of the economy is essential for resolving the budget deficit problem,” said the president of the UIA, Ignacio de Mendiguren.

“What we must do is recreate a ‘virtuous circle’, which would require an indispensable redistribution of income in favour of wage-earners, in order to get local capitalism functioning again,” De Mendiguren told an audience that included De la Rúa and Cavallo.

The Catholic Church has also expressed its support for initiatives that would constitute an alternative to the current economic model.

And proposals by other sectors as well as individual economists for the creation of taxes on capital gains and speculative and volatile capital inflows have also fallen on deaf ears.

Authorities continue to count on the support of the financial sector and companies with links to the external market, which insist on the need to wipe out the fiscal deficit as an essential step prior to the implementation of any measures aimed at redistribution.

This week, Cavallo criticised those who issued “siren calls” for changes in economic policy. “They are the ones who talk about…redistributing rather than producing,” he complained.

The minister asked prominent U.S. economist Paul Krugman, on a visit to Buenos Aires this week, to refrain from making public statements on the Argentine economy, and in particular to stop touting his proposal to devalue the peso to help exports recover their competitiveness.

Nor does the government seem overly concerned about the plunge in popularity of the president and his high-profile economy minister, and it is apparently resigned to the expected defeat of representatives of the ruling coalition in the coming parliamentary elections.

According to the latest opinion polls, a mere seven to 20 percent of respondents hold a positive image of De la Rúa, and a similar percentage are satisfied with Cavallo, whose popularity ratings stood at 52 to 59 percent just four months ago.