The Miami Herald
September 5, 2001

IMF loans are no salve for Argentina's wounds

Default narrowly averted


 Argentine President Fernando de la Rúa -- looking more jubilant than he had in weeks -- declared that the country ``was on its way,'' stock markets cheered and President Bush joined in the celebration when the International Monetary Fund announced two weeks ago that new loans were forthcoming.

 The $8 billion from the multilateral agency in Washington was the second rescue package in 10 months -- and the sum amassed for the country to avoid default on its $130 billion foreign debt climbed to a hefty $48 billion.

 The latest bailout package may buy time, but it doesn't solve Argentina's two fundamental financial problems: an unsustainable debt burden and an overvalued currency. The package is supposed to include a future bond swap, but the plan is still a work in progress.

 For de la Rúa, any help is crucial. Debt default and devaluation of the currency from its one-peso-to-the-dollar peg could spark political humiliation in October legislative elections.

 Twenty months of the de la Rúa administration have brought Argentina three finance ministers, seven austerity packages and seven general strikes by trade unions
 angered at belt-tightening in times of economic weakness. The latest ``zero deficit'' plan slashed 13 percent from pensions and salaries in July. More cuts are expected.

 ``The world has once again extended us its confidence, and that is good news,'' de la Rúa told his nation in announcing that the country had narrowly avoided default and was to receive funds as early as this month.

 ``Now it is our turn to show the world that we deserve their confidence,'' the 63-year-old leader said as he called on Argentines to live on less, pay higher taxes and fight tax evasion.

 What Wall Street or the IMF view as economic crisis is regarded with bitterness by the Argentines, weary of austerity, joblessness, corruption, crime and ineffective

 ``This is the limit,'' said Jesús Manuel Gandara, 53, who stood outside the Spanish Consulate on a recent morning, along with hundreds of other Argentines seekings

 ``How can you have faith in a country where you sacrifice and then you reach retirement and they starting cutting pensions,'' Gandara said. ``There is nothing to give you a glimmer of hope.''

 Experts estimate that some half a million Argentines out of the population of 36 million have emigrated to the United States, Italy and Spain in the past three years as
 unemployment has hovered at 15 to 20 percent and the economy has shrunk. Catholic Church sources place the number of meals provided at soup kitchens at one
 million a day, a staggering number in a nation with the highest per capita income -- $7,000 -- in the region.

 There is no hope for recovery this year, despite the new loans and despite the return of Domingo Cavallo to his former post as minister of economics. Cavallo was widely regarded in boardrooms from Buenos Aires to New York for having tamed runaway inflation with the introduction of the currency peg in 1990.


 But Cavallo has shown no Midas touch this time. UBS Warburg became the latest investment bank to lower its Argentina forecast to negative 1.4 percent growth for 2001 -- bringing the forecast for Latin America down to 1.7 percent -- not sufficient to show any of the real gains in per capita income that the region so desperately needs.

 Of all the countries, however, Argentina's case is one of the most dire. Its crisis encompasses everything from politics to the economy. Political analysts say it is worse than the Dirty War in the 1970s and the hyperinflation of the 1980s because so many problems are coming at once.

 Some 125,000 Argentines fled political violence in the country in the '70s, and while the era is considered one of the darkest episodes in Argentine history, it did not spark the economic desperation of today. Even in the runaway inflation under former President Raúl Alfonsín, workers were spared major layoffs.

 ``There was inflation, but there were jobs,'' said Luis Farinello, a priest who runs soup kitchens in the shantytowns of Quilmes, south of Buenos Aires, and is running for the national senate in Oct. 14 balloting. ``There were factories back then. Today all our industry is destroyed. Everything is imported. Industry is dying because it has neither an internal market nor an external one.''

 ``People have no hope,'' said Rosendo Fraga, who heads the think tank and polling consultancy Union for the New Majority. ``You see this in the quantity of people who want to leave the country. The problem starts with the leadership.''

 The de la Rúa government is so weak, political analysts are expecting a major defeat for the government coalition in the October legislative elections.


 After the new loan was announced, 14 of the nation's 24 governors, all from the opposition Peronist Party, rejected the government's call to join the austerity measures and receive reduced revenue from the federal government.

 ``To cut funds for the provinces would mean playing with fire,'' said José Manuel de la Sota, the Peronist governor of Córdoba. ``The only thing this would do is increase hunger and produce more social conflict.''

 The fault lines in Argentina and between global investors and local workers run very deep, from political to economic doctrine.

 Economists who favor globalization blame the government for failing to implement austerity programs and instead borrowing heavily to finance the federal budget.

 ``Every austerity program the government has attempted has failed,'' said Gabriel E. Rubinstein, an economist with the Buenos Aires consulting firm of Miguel A. Broda & Asociados.

 The other side blames globalization.

 ``The economic and financial groups who have subjugated the country through the foreign debt are to blame,'' said Gustavo Koenig, a 20-year-old student participating in a recent protest over austerity.

 But there is one point of agreement.

 From the captains on Wall Street to depositors on Avenida del Libertador, investors have lost faith in the country. In recent months, speculators ``shorted'' the Argentine peso -- betting that it would devalue -- while locals simply withdrew their pesos from banks and changed them to dollars, draining $8 billion, or 11 percent, of bank deposits.

 Although U.S. Treasury Secretary Paul O'Neill chastised the Argentines in undiplomatic terms, blaming them for their misfortunes, analysts and observers say that the Bush administration was finally persuaded to support a new bailout. Despite aversion to the financial rescue mechanisms first championed by former President Bill
 Clinton, they were apparently swayed by the argument that an Argentine default would threaten to spill over into surrounding countries, like Brazil.

 ``Argentina is too connected to Brazil and nobody wants to have a broader emerging markets crisis on their hands,'' said David Rothkopf, a former Clinton administration commerce official and now an international business consultant in Washington.

                                    © 2001