ARGENTINA: End of the Alliance with Financial Sector

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Jan 5 2002 (IPS) - Argentine President Eduardo Duhalde announced Friday the end of a decades-long alliance between the political powers and the financial world, and the creation of a new development model based on a pact between the state and national productive sectors.

“Successful models in the world have many common features, but there are two that no system can be without: the first is the unconditional defence of national interests, and the second is total unity between the public and private sectors,” Duhalde told business and labour leaders.

The Justicialista (Peronist) Party president, chosen Tuesday by a joint assembly of the two houses of Congress, praised “successful” countries that defend their local business sectors.

He also recommended that consumers check the origin of products before making purchases, in order to support Argentine jobs.

“We have to awaken the national conscience,” said Duhalde, in line with the discourse of the new production minister, José de Mendiguren, the president of the Argentine Industrial Union, who frequently complains that supermarket shelves are packed with imported products, including the most basic food items.

De Mendiguren stressed Thursday the need to use local products to replace 16 billion dollars a year in imports that form part of public sector procurements.

Duhalde’s speech was a preamble to the formal announcement of the economic rescue package that Congress begins to discuss Friday, which mainly consists of the elimination of the convertibility or currency-board scheme that has pegged the peso to the dollar since 1991, and a devaluation of around 40 percent.

In addition, debts of less than 100,000 dollars denominated in that currency will be repayable in pesos, caps will be put on fuel and medicine prices, public service rates will no longer be fixed in dollars, and the government will renegotiate and honour loans to multilateral lenders like the International Monetary Fund.

Privatised companies continued to press the government Friday not to revise the contracts that for the past decade ensured the fixing of utility tariffs to the dollar, and their indexation to the US inflation rate.

The modification of those playing rules and the devaluation of the peso, the currency that consumers use to pay their utility bills, will lead to a reduction in the earnings that companies like Spain’s Telefonica remit to their central offices overseas.

The government believes it is unfair to make users pay increases of 40 percent or more in water, electric, telephone or gas bills.

But in compensation, the companies want either subsidies, the conversion of their dollar debts to pesos, or a reduction of the amount they committed themselves to investing in Argentina.

Trade unionist Víctor De Gennaro with the Congress of Argentine Workers said Duhalde – with whom he met Friday – told him that “the lucrative financial returns” that paved the way for a massive outflow of dollars for speculative ends had come to an end in Argentina.

De Gennaro also pointed out that just 1,299 people had obtained 48 percent of all bank credits, out of a total of 5.5 million debtors. He argued that those privileged clients of the financial system should be left out of the conversion of dollar debts to pesos.

As he had stated when he was named president Tuesday, Duhalde said Argentina was broke, like many of its businesses, and admitted that politicians shared the responsibility for the crisis.

He also warned that, given the gravity of the crisis, which led to Argentina being governed by five presidents in two weeks, “the next rung down is a bloodbath.”

In the face of the imminent devaluation, which could occur Monday, if Congress approves the government’s economic proposals over the weekend, the president called on the business community to be “very careful” to avoid resorting to price hikes.

Prices have already begun to rise in supermarkets, grocery stores, pharmacies and shops selling home appliances. But the government believes that trend will be neutralised by the recession – which is in its 42nd month – high unemployment, and the tight money supply caused by the limits on bank withdrawals.

The spectre of hyperinflation, which haunted this country of 36 million in the late 1980s and early 1990s, with four-digit annual inflation rates, has been reawakened, although conditions today differ greatly. For example, unemployment stood at six percent back then, compared to nearly 19 percent today.

“It would be suicidal to trigger a rise in prices,” said an executive of the textile manufacturing firm Adidas, after Duhalde’s speech. He was alluding to the wave of supermarket looting and protests that left 30 dead and forced Fernando de la Rúa to resign as president on Dec 20.

Marcelo Ramos, an advertising agent, told IPS that over the weekend he tried to buy a ladder marked at 140 pesos (still at par with the dollar).

The owner of the hardware store initially rejected Ramos’ credit card and checks, and refused to sell him the ladder, arguing that it was “imported” and that he feared he would not be able to replace it in case of a devaluation.

At the height of the runaway inflation in 1989, it was common for shop-owners to mark up prices right in front of customers, while pointing to the devaluation – a practice that sparked a wave of looting and rioting when the tension reached breaking-point.

But today, conditions are different, and consumers can use that to their advantage.

Although the owner of the hardware store at first refused to sell, holding out for dollars or pesos in cash rather than a check or credit card, he finally gave in when Ramos said he would buy a ladder in a nearby hypermarket.

Some customers said they were unable to purchase medicines in the pharmacies, although not all of the cases were due to speculation and hoarding of products to await the rise in prices. Consumers’ lack of cash, and the delays of health care services in paying the discounts offered to patients, stood in the way of sales.

Duhalde stressed that in neighbouring Chile or Brazil, devaluations are not followed by a spiralling of prices. “We are the least nationalist, we are less patriotic,” said the president, who promised that he would talk to the owners of supermarkets and to the chambers of commerce to prevent negative effects of the devaluation.

“I am absolutely convinced that this will be a success,” said Duhalde.

“I am a president of the transition, I’m not competing with anyone,” he added, to dispel suspicions of demagoguery. “I know miracles don’t exist, but I’m going to leave my successor an orderly Argentina that is on its feet and functioning well.”