ARGENTINA: Harsh Adjustment Measures Met with Resistence

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Jul 16 1996 (IPS) - The new adjustment measures announced in Argentina have managed to do what politics couldn’t, uniting businesses and unions, ruling party and opposition legislators, stock dealers and economists of all persuasions.

The pressure from a fiscal deficit of 2.508 billion dollars in the first six months of the year – a billion more than was agreed with the International Monetary Fund (IMF) – forced the Ministry of Economy to opt for a series of unpopular measures of doubtful effectiveness in order to reach their goal.

The government had counted on a far bigger income from tax, but they miscalculated badly, and within the next few days they will also have to cough up 6 billion dollars in interest payments on the foreign debt.

“If our books do not balance in the second semester they will cut our foreign credit,” said Economy Minister Domingo Cavallo, to a group of 20 high level entrepreneurs, in an attempt to curry favour given the strength of the opposition raised.

He said family allowance would be reduced for families with an income of more than 1,000 pesos (on a par with US dollars) per month, including the payments for a new child, a marriage or school age children. Meanwhile, the allowances paid to those earning less than this amount will be increased slightly.

Similarly, he said the food bonds received by 1.5 million workers as part of their salary must be included in tax calculations, which basically means a cut in income for these people, as the bonds often covered salary increases which the companies can no longer afford to pay if they also have to pay tax.

Lastly, the adjustment fell most heavily on the sector already suffering most from the shortcomings of the economic model – the old age pensioners.

Cavallo announced a 20 percent reduction in the budget of the PAMI – the organisation which provides health services for the pensioners.

According to calculations by the opposition Radical Civic Union, salaries will fall on average 10 percent, because even if the employers accept the incorporation of food bonds in the salary, the workers must still pay 17 percent of this in social security contributions.

The Economy Minister is hoping to raise 800 million dollars with these measures, but independent economists claim the total will be more like 300 million, that it will cause a major recession in the internal market, and far from relieving unemployment – which reached 17.1 percent in May – it will in fact make it worse.

Representatives of the chambers of trade expressed their opposition to the measures, which they claimed would seriously damage certain sectors, especially the foodstuffs area – the food bonds issued are exchanged for meals in restaurants, bars and supermarkets.

Also, the reduction in family allowances, which in some cases were worth a month’s wages per year, will also bring a reduction in other sectors.

Employment Minister, Armando Caro Figueroa, said Tuesday the business sector must include these bonds in the salary and pay the appropriate tax on the bonds, even though the decrees signed by President Carlos Menem do not make this obligatory.

The governors of seven provinces in the interior, some controlled by the ruling party, rejected the measures and refused to impose them.

The strongest criticism came from Governor of the Province of Buenos Aires, Eduardo Duhalde, of the ruling Justicialist Party, who argued with the President over the probable social implications of the decree.

Duhalde is hoping to replace Menem as President in the next elections.

The General Workers Confederation (CGT), identified with the Justicialist Party, warned that it would respond with a strike in August, and the Movement of Argentine Workers, supported by the government opposition, has already called a march for July 26.

The economists, who tend to split both ways when new measures are brought in, agreed this time to criticise Cavallo’s suggestions.

“The serious issue is that the government will pay an enormous political cost without getting any results,” said Juan Alemann, an economist connected to the ruling party.

“These measures will have a negative redistributive effect and are not going to affect the fiscal problems, they will also not help reactivation,” said Arnaldo Bocco, an economist supporting the opposition Solidarity National Front.

The announcements did not fare any better in Congress.

Many members of the Radical Civic Union, the second political power in the nation, are expecting their party to call for the decrees to be revoked, and even the Justicialist deputy Jose Luis Castillo recognised they were unpopular.

The bad atmosphere created by the announcements have also reflected on the performance of the stock exchange.

“We had hoped for something more creative from the minister in order to resolve the fiscal imbalance, and he came out with these measures,” complained one dealer.