ECONOMY-ARGENTINA: Spending Cuts, a Time for Protests

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Jul 18 2001 (IPS) - Private company stocks and public debt titles in Argentina saw a rise Tuesday as a result of the political opposition’s show of support for the government’s spending cuts, but the social sphere is a different story as protests and labour strikes get underway.

Argentina’s three largest labour unions agreed to convene a general strike for this Thursday to protest the 13-percent cuts in state employee wages and in pensions greater than 300 dollars, measures they consider inequitable and recessionary.

The two unions fighting over the name General Confederation of Labour (CGT) – a faction that is more open to dialogue with the government vs. another that is considered dissident – and the Congress of Argentine Workers have set aside their differences to call the nationwide general strike.

But one day prior, on Wednesday, government employees are planning a 24-hour strike that is expected to cause interruptions in various public and private services. They are also organising street rallies and roadblocks to protest the adjustments the government announced last week to achieve a balanced budget, or “zero deficit.”

The wave of protests begins at a moment when the financial markets appear to have taken a wait-and-see attitude toward the results of the sharp spending cuts the Fernando de la Rúa government presented last Thursday in a bid to eliminate the public deficit and to avoid a default on debt payments.

The Argentine stock market index rose more than five percent Tuesday and the country risk – an indicator of investor confidence – improved, falling from 1,649 to 1,490 points by the end of the day.

The trend, though it is not yet substantial, is positive, especially following the crisis of last Thursday and Friday, when holders of Argentine bonds seemed to believe that a halt on public debt payments was inevitable, a balance that reaches 128 billion dollars.

The De la Rúa administration announced last week that, beginning this month, the government would only spend what it collects in tax revenues. The decision prioritises payments on the debt and of pensions less than 300 dollars, and implies that the rest will go only towards paying salaries, retirements and suppliers.

Estimates of monthly tax revenues have allowed the government to project that the first cut in spending will be approximately 13 percent across the board, but will be adjusted later based on the amount of money entering state coffers on a monthly basis.

The spending cuts were well received by neoliberal economists, who for some time have been proposing such an adjustment of public expenditures. They argue that the government should not incur more debt at such high interest rates and must improve access to private credit.

But the measures were loudly criticised by politicians of all stripes, including those of the governing centre-left coalition.

De la Rúa won the elections less than two years ago as the candidate for the ‘Alianza’, which promised to reactivate the economy, create jobs and improve the distribution of income. However, he has implemented seven financial adjustments since he took office in December 1999.

This time around, the president won hesitant backing from the governing coalition, though its politicians continue deliberations on the matter.

The Radical Civic Union, the Alianza’s dominant force and the party of De la Rúa, expressed its support for the president more than for the spending cuts, proposing alternatives to achieve a fiscal balance without reducing pension payments. So far, the executive branch has ignored the party’s suggestions.

With no response from the president, the Radical party’s chief, former president Raúl Alfonsín (1983-1989), has apparently decided to keep quiet and let the Alianza lawmakers debate the proposals.

For its part, the governing coalition’s other wing, the Frepaso party, also offered its backing, though grudgingly and with conditions. Many of its leaders are putting the party’s membership in the Alianza in doubt. The coalition already lost a dozen legislators as a result of a fiscal adjustment several months ago.

The opposition ‘Justicialista’ (Peronist) party, meanwhile, signed an accord Tuesday of “institutional support for the governability of Argentina,” which entails achieving zero deficit, but without committing to cuts in salaries or pensions.

After five days of consultations and debate, the national government has promised to cancel a debt it has pending with the provinces, in exchange for a commitment from the provincial governors to work towards fiscal balance – though without curbing incomes for public employees and pensioners.

At the same time, the executive branch is attempting to gather contributions from corporations and banks to set up a solidarity fund with advances on value-added taxes and income taxes, in order to transfer that money to the provinces to pay off the national government’s debts to them.

The request, which this Tuesday reached companies and banks here that are headquartered in Spain – the number-one foreign investor in Argentina -, also entails a fund based on an extra contribution from the enterprises that now own the privatised public services. The matter is currently in consultation among the firms’ shareholders.

The appeal for the contribution, an initiative of the Argentine Industrial Union, is an attempt to create unemployment insurance for heads of families who are without work as a means to inject money into the market and activate the national economy, which has been stagnant the last three years.

According to official figures, Argentina has been in recession for three years and unemployment has hovered around 16 percent, making it costly to finance debt payments at the same time as maintaining a balanced budget.