Argentina's Menem orders freeze on spending
BUENOS AIRES (Reuters) -- Argentine President Carlos Menem ordered
a freeze on public spending Tuesday in the latest of a series of measures to
soften the blow of global financial turmoil to the nation's economy.
"Today I have given absolutely clear orders to freeze public spending,"
Menem said in a speech in the tropical province of Misiones. "I will take
very tough measures to ensure the effects of the crisis do not come down
hard on our economy."
Menem gave no specific details of how spending will be frozen but the
announcement follows a government decision in June to cut expenditure by
$1.0 billion from this year's budget.
Argentina's budget is already confined by a deficit target of $3.5 billion
1998 under the terms of a three-year $2.8 billion loan deal approved this
year by the International Monetary Fund.
The government also suspended a highway expansion plan in June, which
would have required more than $10 billion to build more than 11,000 km in
The financial market crisis has pushed interest rates higher, causing a
contraction in credit which is expected to slow growth, which in turn could
reduce tax receipts. But local economists have ruled out a recession.
Menem's statement gave an extra push on Tuesday to Argentine financial
markets, which were already benefiting from a rebound on Wall Street after
sliding with Wall Street on Monday. Argentine markets on Tuesday
outperformed other Latin American markets.
The stock market surged 8.08 percent by Tuesday afternoon after slumping
40 percent in August. The yield on the country's 30-year global bond fell
sharply to 12.5 percent from 15.0 percent at Monday's close.
Despite the measure, Menem said "Argentina is one of those countries that
in the best shape to survive the crisis on a firm footing," pointing to "all the
precautionary" measures taken since Mexico's peso devaluation which led to
a severe recession in 1995. "I am convinced we will not be affected too
much," he said.
On Tuesday, the Argentine Central Bank announced its foreign reserves hit
record of almost $26 billion last week, a sign that more foreign funds were
entering the country.
Separately Tuesday, Economy Minister Roque Fernandez said "we have
already laid the foundations, this crisis will not affect us, we don't need any
special preventive measures because we already took them."
In the wake of the Tequila crisis, authorities implemented tougher banking
reserve requirements, tighter supervision and a emergency fund to help
troubled banks if necessary.
Menem urged provincial governments to take measures to safeguard their
finances as well. As least one, Buenos Aires province, has already done so.
Last week, Buenos Aires' Economy Minister Jorge Sarghini told Reuters the
province would cut spending in the last four months of the year by $150
million and increase the size of its anti-crisis fund to $200 million from $100
Argentina's peso, which has been pegged at par to the dollar since 1991,
successfully rode out the 1995 "Tequila" affect because of the government's
willingness to endure recession rather than letting it float.
Despite widening fears Latin America could be the next in line to face
currency pressures to devalue like in Asia and Russia, Menem said: "We will
not throw aside all the sacrifices made by the people during the recent years
"We have a very strong and stable economy, because the worth of the peso
six years ago is the same as now," he said, ruling out a peso devaluation.
Copyright 1998 Reuters Limited.