Argentina tense amid meltdown fears

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From the Chicago Tribune

Argentina tense amid meltdown fears

Patience thin as hardships mount in 3-year recession By Patrice M. Jones

August 5, 2001

BUENOS AIRES -- The screams of protesters echoing daily down the stately avenues and monument-lined streets are a constant reminder that an eerie sense of panic is filling Argentina's graceful capital.

As investors worldwide have speculated for several weeks that the nation will be forced to default on a $130 billion foreign debt, stocks have tumbled. Capital flight has intensified and unemployment has inched past 16 percent, the highest rate in years.

A growing number of businesses are bankrupt. Foreign investment has evaporated.

Nineteen months into the presidency of Fernando de la Rua, Argentines are bracing for what some fear may be an eventual economic--and maybe political--free fall. Many are speculating that the economic shakeup being called the "Tango Effect" could spread across the region and the globe.

And while it is not the first time the nation has been on the financial brink, people here seem uncharacteristically weary. The strain of the crisis could be seen in the eyes of an elderly man who waved his monthly pension check of $211 during a rally last week.

"I can barely survive, but I don't care about myself. I am already very old," said 77-year-old Norberto Garcia, a retired carpenter. "But what about all of these young people gathered here? What will they do?"

Few options for president

Anger has brewed because a recession has gripped the nation for three years and the government of de la Rua has almost run out of options.

The economic slide deepened last month when the country auctioned $850 million in short-term debt with interest rates so high that the government said it effectively was cut off from new loans. With a foreign debt that is almost half of gross domestic product and a history of public overspending, investors seem to have lost patience.

The response was lukewarm even when the Senate approved a bill Monday cutting the salaries of public employees and pensioners by 13 percent as a last-ditch effort to avert an economic meltdown.

After years of watching the country survive on borrowed money and empty promises, analysts say, investors want to see proof that the government will carry through with drastic budget reductions. Some are betting that Argentina eventually will default on its foreign debt or devalue its currency, which pegs the peso to the dollar.

"Argentina is like a person who used to be rich but now can't seem to stop living beyond his means," said Abel R. Viglione, senior economist for the Buenos Aires-based conservative think tank FIEL.

In the nation's capital, often compared to Paris because of its architecture and European tastes, the clash of old wealth and new hard times is evident.

A ragtag army of thousands of unemployed workers, union members and government employees have marched daily, snarling traffic past the trendy boutiques and cafes. Tens of thousands blocked roads nationwide Tuesday, and teachers say they plan to strike this week.

Meanwhile, the lines outside the Italian and Spanish Embassies are growing daily as the country's best and brightest try to leave for a better life, as their relatives did when they came here generations ago from Europe.

"I think Argentines are tired of not knowing what is going to happen next," said Maria Julia Goien, a 32-year-old professional who is heading to Madrid to take a new job after being laid off here six months ago.

"I was the one who said I would never leave," she said. "I will miss my family and my friends, but I have given up hope for now."

Hopes for international aid

The government is banking on positive signs shown by the International Monetary Fund, foreign governments and other international bodies that in recent days warmed to the idea of stepping up assistance to Argentina.

The IMF said Friday that it was prepared to accelerate a $1.2 billion loan to Argentina and establish a $15 billion line of emergency credit for Brazil.

The announcement followed discussions President Bush held with British Prime Minister Tony Blair and Spanish Prime Minister Jose Maria Aznar about deepening economic troubles confronting South America's two largest economies.

Analysts say the crisis is far from over. The recent budget cuts are expected to be just the first step for leaders who have been slow to make tough economic choices in the past.

Argentina emerged in the 1990s with new confidence under the liberal economic policies and privatization of President Carlos Menem. But while the economy grew some 43 percent during the decade, government spending rose 90 percent.

De la Rua said he would stop the spending frenzy, but he did little during his first year in office.

His administration also suffered after a federal investigation was launched into an alleged Senate bribery scheme, and the nation's popular vice president, Carlos "Chacho" Alvarez, quit in protest.

The government never really recovered. Even the March appointment of Economy Minister Domingo Cavallo--who led the country out of crippling hyperinflation a decade ago--has not helped.

De la Rua's critics already are saying publicly that the still-powerful party of legendary leader Juan Peron could win the next presidential election, capitalizing on the disappointment of a nation.

"We have many options for candidates," Jose Luis Gioja, president of the Justicialist bloc of the Senate, said recently as unionists and workers--Peronists' traditional supporters--chanted outside the Congress building.

Elections could be bellwether

October midterm elections probably will be the most telling sign of things to come.

Some Argentines, though a minority, say the country's economy will come roaring back soon. The nation, which in the early 20th Century was one of the world's most prosperous, has weathered boom and bust financial cycles, hyperinflation and even deadly military dictatorship.

Only a little more than a decade ago under President Raul Alfonsin, 15 people were killed in food riots. At the time, the nation's coffers were virtually empty and no new foreign credits were forthcoming. The president resigned.

This time, while there still are complaints of a bloated bureaucracy, only a small minority of the population would prefer to oust de la Rua and risk political chaos.

Even now, many people fear the influence of the once ironfisted military.

While no one believes a coup could be possible, even the prospect of a single charismatic leader rising to power, as was the case in Venezuela with Hugo Chavez, is frightening enough to many that they plan to watch and wait.

http://chicagotribune.com/templates/misc/printstory.jsp?slug=chi%2D0108050287aug05

Copyright © 2001, Chicago Tribune

-- Martin Thompson (mthom1927@aol.com), August 05, 2001

Answers

In 1999 the IMF bailed out Brazil at the last minute, but their financial contribution was substantial. It's hard to see how they are going to make any dent at all when they are talking about a piddling $1.5 billion against a default threat of $130 billion of overhanging debt.

I guess we shall soon see.

-- Wellesley (wellesley@freeport.net), August 06, 2001.


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