ECONOMY-ARGENTINA: Crisis, Political Pacts Limit New Minister

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Apr 26 2002 (IPS) - Argentine President Eduardo Duhalde designated a new economy minister Friday, Roberto Lavagna, a respected economist willing to tread the line between the need for fiscal discipline and the urgency of restarting the strangled economy.

Lavagna met immediately with a team of economists, outgoing minister Jorge Remes Lenicov and Central Bank authorities to study the situation and devise an emergency strategy to be put into effect next Monday. He will be formally sworn into his new post on Saturday.

But Lavagna’s maneuvering room will be limited by the conditions imposed by Duhalde and the provincial governors, who reached agreement Wednesday on a political pact for overcoming the latest downturn in the severe crisis plaguing this country of 37 million since looting and protests toppled two governments in December.

The president and the governors also confirmed that the current economic policy direction would remain unchanged, and that negotiations with the International Monetary Fund (IMF) would continue.

“It is necessary to walk a very fine line which, without closing ourselves to the world, will enable us to pay attention to production, the populace, and the interior of the country,” said Lavagna on his arrival from Brussles, where he was serving as Argentina’s ambassador to the European Union, the World Trade Organisation and United Nations agencies.

“A good part of the situation today in Argentina is the result of discrepancies between orthodox and heterodox currents, and between right and left,” he added.

At age 60, Lavagna has thus reached the pinnacle to which any public sector economist aspires in normal times. But the country he must help run is experiencing one of its worst moments in history.

The economy has not grown since 1998, the banks are on the verge of collapse, the exchange market is out of control, prices are climbing, and the proportion of the population that is unemployed and living in poverty – 25 and 40 percent, respectively – has set a new record.

“The situation is extreme,” Lavagna had stated before receiving his new job offer.

After a four-day bank and foreign exchange holiday that was imposed to curb the withdrawal of deposits, the banks opened their doors again Friday, but only to carry out transactions between financial institutions.

They were not authorised to serve account-holders trying to withdraw cash or pay bills, although savers could withdraw money from automatic teller machines – the ones that have been restocked, anyway.

That means that for the public, the bank holiday continues, although the black market is going strong. On the streets, the dollar is trading at 2.9 to 3.4 pesos, 10 percent higher than the going rate on Apr 19, the last day foreign exchange operations were allowd on the formal market.

One of Lavagna’s first measures will be to determine a fixed exchange rate. The president and the country’s governors believe it is necessary to put an end to the free flotation of the peso, which in their view could fuel a return to hyperinflation.

Lavagna’s predecessor, Remes Lenicov, handed in his resignation after an emergency bill that he authored, which would have forced savers to swap certificates of deposit for long-term treasury bonds, foundered in parliament.

Government spokesman Aníbal Fernández did not rule out the possibility that Lavagna would refloat the idea of the swap of fixed-term deposits for bonds, in order to save the crippled financial sector.

Hugo Moyano, the leader of the General Confederation of Labour, which is opposed to the government, said Lavagna’s designation brought no new hopes, because he would be forced by the parties with a majority in Congress to continue talks with the IMF. The trade union announced a protest against the multilateral lender, which is likely to be scheduled for May 9.

Lavagna’s career in the public sector began in the 1970s, when he served as secretary of price policies during the third presidential term of Juan Perón (1973-74). Later he joined the government of Raúl Alfonsín (1983-89) as secretary of industry and commerce.

After a stint as a business consultant, he was designated ambassador to the European Union by Fernando de la Rúa (1999- 2001).

Lavagna is respected by his fellow economists, who consider him a “heterodox.” He is a pragmatist concerned with fostering production, and has an in-depth familiarity with industry and its problems, although he does not forget the need for a balanced budget. But unlike other economists, he does not see fiscal balance as the key to achieving economic growth.

Perhaps for that reason he has not stood out in the constellation of orthodox economists who cheered on former president Carlos Menem (1989-99) and later were frequently consulted by the media in the search for solutions to the crisis.

In fact, financial circles would have preferred Guillermo Calvo, chief economist at the Inter-American Development Bank, another candidate to succeed Remes Lenicov.

Calvo flew from Washington to Buenos Aires on Duhalde’s request. The president apparently wants him to join a team of economists of different stripes who will advise Lavagna – with Remes Lenicov at its head.