Americas & International Economy:
Argentine budget dispute imperils loans congress legislators' threat not
to co-operate puts pact with the IMF at risk and brings formal debt
By: Thomas Catan and Richard Lapper
Financial Times, December 17, 2001
legislators are threatening not to co-operate with government budget plans
for next year, endangering an agreement with the International Monetary
Fund and bringing the country closer to a formal default on its Dollars
155bn (Pounds 108bn) foreign debt.
- including the looting of supermarkets in at least two cities on Friday
and Saturday - has also raised the political pressure on President
Fernando de la Rua and could accelerate the abandonment of the
long-standing convertibility exchange rate regime.
approval of the 2002 budget proposal is required if Argentina is to win
access to some Dollars 1.26bn of funds from the IMF but congressional
leaders said that they will oppose any further spending cuts. These would
"not be approved even by chance", said Eduardo Camano, the
president of the deputies. He belongs to the opposition Peronist party,
which controls both houses of congress.
imposition of bank controls two weeks ago has heightened political
tensions. The measures, which limit savers to withdrawing Dollars 1,000 a
month in cash, are further squeezing an economy now in its fourth year of
signs that they could be having a devastating effect on the cash-dependent
informal sector, which contributes about 30 per cent of economic output.
On Friday and Saturday there were mob attacks on supermarkets in the
cities of Rosario and Mendoza, reviving memories of the economic and
social turmoil that led to the resignation of President Raul Alfonsin in
1989, several months before the end of his mandated term.
All this is
leading to an ever more open debate on the sustainability of Argentina's
currency regime, long a taboo subject. Domingo Cavallo, the economy
minister, signalled on Friday night that a de facto dollarisation is
uncertainties surrounding the value of the peso have provoked a growing
dollarisation," said Mr. Cavallo. "The government's attitude has
been to facilitate the transformation of pesos into dollars to the extent
that people have wanted them to do."
Mr. De la Rua
is opposed to dollarisation but last week won the backing of Carlos Menem,
his Peronist predecessor, for the budget plans. Mr. Menem is the most
prominent proponent of dollarisation. Other factions of the opposition
Peronists - as well as leaders of Mr. De la Rua's own Radical party - are
Carlos Ruckauf, the governor of Buenos Aires province and one of the
most powerful Peronist leaders, favors a third currency that would
circulate alongside the dollar and the peso but be non-convertible.
This new currency would replace bonds issued by a number of provincial
governments to pay workers. Mr. Ruckauf said that if measures were not
taken soon the "market would devalue".
PO Box 20022, New York, NY 10025
Phone: +1 (212) 557-3163 - Fax: +1 (212) 557-3164