- BUENOS AIRES, Argentina
- Argentina's government, struggling to turn around a four-year recession
that has put the country on the verge of social chaos, said on Sunday the
economy could contract even more this year after a painful currency
- Only two days after the biggest street demonstrations
yet by an angry middle class and unemployed Argentines protesting the new
government, Deputy Economy Minister Jorge Todesca said gross domestic
(GDP) could fall 5 percent this year.
- "When we came into government, at first we forecast
a 2.6 percent fall in GDP ... we've changed that ... taking us to a 5
contraction. The budget will be based on this forecast," Todesca told
- Foreign Minister Carlos Ruckauf warned the country was
caught between public demands for an end to bank deposit freezes and
as well as pressure from the International Monetary Fund to cut spending
and endemic government budget deficits.
- "We are on a knife edge -- we know we have to reach
an agreement with the monetary fund to save our country's accounts but,
at the same time, we cannot go against the interests of the people,"
Ruckauf told the Corriere della Sera newspaper in an interview.
- " ... Argentina told the IMF many lies but now we
will reveal all the stark truth. We are ready for decisive measures,"
- President Eduardo Duhalde, a member of the Peronist Party
and the fifth president in just over a month, is cobbling together a 2002
budget plan that will include drastic spending cuts that are needed to
win crucial International monetary Fund aid.
- Only 26 days into the job, Duhalde has not yet said where
the spending ax will fall or how the government will help the economy.
Ruckauf said measures would include cutting provincial spending and
the value added tax from 21 percent to 15 percent.
- TOUGHER STANCE FROM IMF
- The IMF has taken a tougher stance with a country that
over the last year won pledges of $20 billion in IMF aid but failed to
meet the agreed upon macroeconomic targets. The IMF has said that Argentina
must show a credible plan if it expects to receive any more cash.
- After suspending payments on its $141 billion foreign
debt, Argentina's government is unable to raise any credit on foreign
so IMF aid is the only source of outside help.
- "The common inability of Argentina to fulfill its
promises has exhausted the patience of U.S. authorities," political
analyst Fernando Laborda wrote in La Nacion newspaper.
- But South American governments such as Brazil and Chile
are pressing for international help for Argentina, mindful the impact the
crisis could have on their economies.
- A study published Sunday by the Fundacion Capital
said that Argentina's troubles could impact its major trade partners such
as regional powerhouse Brazil by reducing investor confidence in South
- The 30 percent devaluation of the peso currency had put
banks -- already suffering from drastic banking curbs that have frozen
most savings accounts -- on the brink of collapse.
- The government policy of a dual exchange rate -- an
rate of 1.40 pesos per dollar for foreign trade and a parallel floating
rate for cash deals -- has been criticized by the IMF as unworkable,
already tense relations with Argentina.
- Many foreign-owned banks have said they could walk away
from Argentina if they are forced to lose billions of dollars. The
has said that it could turn all dollar savings into pesos at a official
rate of 1.40 pesos per dollar, something that could deepen bank
- But Argentines, already seeing their dollar savings fall
at least 20 percent due to the curbs, have protested daily, culminating
last Friday as tens of thousands of demonstrators took to the streets
- Unemployed groups, who have increasingly blocked major
highways over the last year to demand government help, plan on Monday to
rally outside the presidential palace to call for one million more
- Unpopular bank restrictions last month triggered the
worst civil unrest Argentina has seen in a decade, when rioting and looting
brought down former President Fernando de la Rua and left 27 people
- Ruckauf said that the government could lift the banks'
unpopular restrictions by mid-year.
- "As a general indication we will move to the
dollar in the next three months, and by July we will completely lift the
partial block on bank withdrawals," he added.
- Ruckauf is due to meet President Bush, Italian Prime
Minister Silvio Berlusconi and Spain's Jose Maria Aznar next week to rally
support for Argentina's cause.