ARGENTINA-ECONOMY: Despite Problems Some Improvements in 1996

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Dec 24 1996 (IPS) - All things considered, including the sacking of Economics Minister Domingo Cavello by President Carlos menem, 1996 has been a good year for Argentina.

Some people, however, still felt a financial squeeze in 1996

“I don’t understand why they are saying that ‘we have come out of the recession’. For me, the situation is worse. My husband lost his job, and I was told to work more hours for the same salary”, says Alicia Peralta, a domestic worker.

Financial analysts admitted that while there was an improvement in macro-economic indicators, they did not had impact on the quality of life for the majority of the population. The era of the consumption boom (1991-1994) is far behind, and whoever held on to a job in 1996 was considered privileged.

At the end of 1995, when the gross national product (GNP) receded 4.6 percent, the government estimated a growth rate of five points this year. The official optimism was rejected by most economists, who predicted a growth of zero to 2 percent, and by the IMF, who thought 2.5 percent would be the maximum growth figure.

But, by the last week of December, GNP had increased nearly four percent, according to the Economics Ministry. For 1997, the evolution will be even better: government and private economists are predicting a growth rate of at least five percent.

Consumption, which had fallen five percent in 1995, increased four percent this year, according to the consulting firm of Miguel Angel Broda, despite the 10 percent decline in the purchasing power of salaries, and an unemployment rate of 17.4 percent. Unemployment would continue to be the government’s greatest challenge in 1997, although economists have prediced a decrease of two percent in the jobless total – if Congress approved laws for labor flexibilization.

The unemployment figures for 1996, together with those under- employmed, revealed more than four million people had problems securing a steady job.

Another study, conducted by the consulting firm Mora y Araujo, indicated that of every five employees, only three have job stability. This phenomenon did not help stimulate consumption.

Investments, which fell 16 percent in 1995, increased eight percent this year, with some 3.7 billion dollars in direct investments, concentrated mostly in industry, after a period (1991- 1995) in which capital was directed almost exclusively to the acquisition of public enterprises.

For 1997, investments are expected to increase between 10 and 13 percent, with a larger presence of Asian countries.

Bank deposits, which suffered a collapse in 1995, leaped from 38 billion to 52 billion dollars in 1996. The demand for credit also increased, though defaults have reach a high of 18 percent of creditors, which in turn determines very high interest rates compared to those neighboring countries.

Bankruptcies of small firms reached 42 percent more than in 1995 despite the recovery, and there were 10 percent more closings of checking accounts. Debts accumulated, and high interest rates and a lack of perspective affected those who depended on internal credit.

Broda says that for 1997, one of the main challenges will be to increase the savings rate, which could reach 18 percent, in order to put a halt on external debts, which at the official level is hovering at about 100 billion dollars.

This year, the government issued external bonds for 9 billion dollars, in order to finance the debt. In 1997, it will have to face the due date for almost 14 billion dollars in loans. But in contrast to last year, the international market is more liquid now than it was back then.

In 1996, the most critical moment was in July, when Cavallo was removed from his post. The dismissal of the man who had conducted Argentina’s economic policies for five years and who was identified with the model itself sparked certain fears, but the markets immediately realized that continuity was not in jeopardy.

The new economics minister, Roque Fernandez, concentrated on reducing the fiscal deficit, which this year surpassed 5 billion dollars, and which will be higher next year. In 1997, fiscal discipline could collapse before legislative elections.

Representatives from the business sector fear that between 1997 and 1999 – when Menem’s term expires – the economy will advance at an unexpected rate with respect to politics, and that there won’t be any more structural reforms like those which they are calling for in the labor market.

For that reason, Menem has been urging Congress to pass legislation for the flexibilization of labor laws, even before the end of this year. But pressure from the unions, who are beginning to express increasing social unrest, now seem to be setting the pace for the government’s timetable.