Argentina's New Chief Wins $2 Billion Increase in Taxes
By CLIFFORD KRAUSS
Dec. 29 -- After weeks of tough negotiations, the
Congress gave President Fernando de la Ruá his most important
victory today by raising taxes more than $2 billion to counteract an
expanding budget deficit.
Along with a
$1.4 billion cut in spending, enacted on Tuesday, the package
should reassure foreign investors and lower interest rates to speed business
expansion, government officials said. Most economists expect a $4.5 billion
deficit for 2000, which the government should be able to finance as long as
economic activity continues to pick up.
Passage of the
economic package should help dispel fears that President
de la Ruá will be unable to work with a Senate controlled by former
President Carlos Saúl Menem's Justicialist Party. Mr. de la Ruá, who has
been in office for only 18 days, was able to break a deadlock by
negotiating with congressional allies of Mr. Menem and with several
Justicialist governors now competing with the former president to take
charge of the opposition.
of a working détente has led some members of the left
wing of President de la Ruá's governing alliance to grumble that he is
backsliding on campaign promises to open a serious investigation into
alleged corruption in the last government.
the president's allies characterized the series of
congressional votes as a big victory. But the legislative achievements may
end up planting seeds for political problems in the future.
The tax increases
will primarily affect the middle class, which is the base
of support for President de la Ruá and his Alianza coalition, which will face
a mayoral election in Buenos Aires next year and congressional elections
in 2001. But the president is betting that his economic program will spur a
bond and stock rally and bring down the 14 percent unemployment rate
much as some economists have credited President Clinton's deficit-cutting
package as having done in his first term.
The de la Ruá
package levies new taxes on soft drinks, alcoholic
beverages, cigarettes, airport use and private medical services. A separate
tax on automobiles costing more than $20,000 will go toward increasing
teacher salaries modestly.
opposition proposed a package that would have hit upper
income people harder, including taxes on interest from bank accounts. The
opposition also wanted to exclude fruit juices and tobacco from the new
taxation to protect provinces dependent on agriculture.
But in the end,
the Alianza majority in the lower house of Congress was
able to block opposition amendments today and the tax package was
"This sends exactly
the right message to the country and investors,"
Senator José Genoud of Alianza said today.
Redrado, an economist who was once a close aide to President
Menem, said the new budget was more "credible" than the one inherited
from the last administration. But he estimated that $1 billion of the $1.4
billion in cuts was merely "accounting cosmetics."
la Ruá's economic package will also take aim at tax evasion,
which is estimated to cost the treasury $25 billion a year, or half the total
owed by taxpayers. The tax collection agency will now have the power to
freeze bank accounts, and special prosecutors will be appointed to
investigate high-income tax evaders.
In his Christmas
message, Mr. de la Ruá made the budget deficit his
primary economic concern. "The deficit is our worst enemy," he said,
adding that "it is suffocating us."
The 1999 budget
deficit of $6.2 billion far exceeded guidelines set by the
International Monetary Fund and increased concerns among foreign
investors that the government would have trouble servicing its debt.
But there are
signs that the worst recession of the decade bottomed out in
the final weeks of the Menem government, although the auto industry is
still contracting and retailers complained that their holiday sales were
below those of last year. Government and private statistics show that
industrial production has been slowly picking up momentum since August,
and improved agricultural commodity prices should help cut a trade deficit
that has grown sharply since Argentina's major trade partner, Brazil,
devalued its currency in January.
Mr. de la Ruá
will need an improving economy to sustain his recent
electoral mandate, given that the Senate, most of the nation's governors
and the judiciary are controlled by the opposition. In his first three weeks in
power, Mr. de la Ruá has governed cautiously, offering few initiatives
apart from the plans to trim the deficit.
on a platform that promised to clean up official corruption,
but government prosecutors have so far indicted only one official in the last
government, Víctor Alderete, the former head of the state-run pensioners'
welfare institute. He faces 17 corruption charges and a $6,000 lien has
been placed on his assets.
Mr. Menem quickly
came to Mr. Alderete's defense, charging that there
was a witch hunt against his supporters. Without specifying what he would
do exactly, the former president told reporters that if prosecutions of his
former aides continued "I will have to speak up."