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Argentine Government Says It Can't Pay Its Workers

By: Larry Rohter
The New York Times, February 26, 2002

Buenos Aires, Feb. 25 — The Argentine government has announced that it cannot pay the full monthly salaries of more than half a million-government employees who are expecting to be paid this week. The government said that because of the worsening economic crisis, tax receipts plummeted 19 percent in January and may fall another 12 percent this month.

"We don't have the money, so we can't pay," President Eduardo Duhalde said in radio programs and interviews over the weekend and again today. "The payment depends on tax collections, and as everyone knows, we are having difficulties with revenues."

Mr. Duhalde's decision has infuriated government employees and the civic groups that have been leading street protests here against austerity, not least because of its timing. It came just a few days after Mr. Duhalde raised his own net salary and those of other top officials by 13 percent to the maximum permitted by law, $1,500 a month.

Rodolfo Daer, leader of the main labor confederation, warned over the weekend that any move by the government to withhold or delay the pay of government workers could "set off a big explosion."

In a report published today, Argentine Research, an economic consulting firm, said that at the very least, "the government will confront a complicated week full of political negotiations" and that any "economic recovery is highly unlikely in the short run."

Now that the government has scrapped its decade-old policy of fixing the Argentine peso's value at one American dollar and backing every peso in circulation with a dollar in reserves, it is free to cover shortfalls simply by issuing more pesos. But Mr. Duhalde said over the weekend that "we want to avoid printing more money" because doing so could lead back to the hyperinflation that crippled the Argentine economy during the 1980's.

To close the government's cash gap, Mr. Duhalde said today that he favors a "special one-time tax" on corporations. Juan Pablo Cafiero, Mr. Duhalde's deputy chief of staff, said on Friday that companies "that have earned a lot or are projecting big earnings in the future can make a special effort so that we can raise the 2 or 3 billion pesos needed" to meet the payroll and maintain spending on social programs.

With the economy stalled, largely because a freeze on many bank deposits and transactions has inhibited consumer spending since early December, the list of profitable Argentine companies is extremely limited. The government has already imposed a special 20 percent levy on oil and gas companies, which have responded by raising their prices at the pump in defiance of Mr. Duhalde's calls for restraint.

In addition, the minister of the economy, Jorge Remes Lenicov, said that restoring a long-abandoned tax on agricultural exports, which account for about half of all Argentine exports, "should not be ruled out." Such a tax would contradict assurances Mr. Duhalde gave farm group leaders soon after being sworn in last month, and would also be extremely controversial politically.

Mr. Duhalde's economic plans assume an inflation rate of 15 percent for 2002, despite the impact of the peso's loss of half its value in a month, which has barely begun to be felt. Over the weekend, though, he acknowledged that inflation for February alone is likely to be 7 percent, up from 2.3 percent in January and only about 2 percent over the previous eight years.

Jorge Tedesca, the deputy minister of the economy, said on Sunday that "emissions by the Central Bank " were responsible for what he called a sharp "increase in the money in circulation." He estimated that about 350 million pesos ($175 million) in new money had been released.

But a leading independent economic analysis group here, Fundación Capital, estimates that the figure is much higher. A new study from the group estimated that the Central Bank had injected at least 1.3 billion pesos into the economy this month alone, and that it had already printed nearly three-quarters of the 2.5 billion pesos ($1.25 billion) that it said would be the limit for the year.

That is likely to complicate the Duhalde government's already difficult discussions with the International Monetary Fund, which cut off assistance to Argentina in December. Argentina is now seeking as much as $23 billion in new funds, but has yet to take the steps foreign lenders are demanding in return, with the chief among them being a reduction in government spending.

"The fiscal arrangements have to get back to a more sustainable situation," Anne Krueger, the fund's deputy managing director, said today at a conference in London. "There is no point in lending more money at this stage.

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