The Washington Post
Wednesday, February 6, 2002; Page A15

Argentine Government Proposes Tight Budget

By Paul Blustein
Washington Post Staff Writer

BUENOS AIRES, Feb. 5 -- Struggling to demonstrate the fiscal discipline needed to restore economic stability and obtain international aid, the Argentine
government issued a budget plan this evening that aims to shrink the deficit by about two-thirds.

The move marked the latest in a series of steps by the government of President Eduardo Duhalde to draw up a comprehensive economic plan that can persuade the
International Monetary Fund to provide a desperately needed lifeline for the shattered Argentine economy.

Having lost its ability to borrow when it defaulted on its $142 billion debt in December, the government has no way of paying its bills other than by printing pesos,
which risks rekindling inflation. So putting a lid on deficit spending is essential to winning IMF backing and keeping Argentina from returning to the hyperinflation that
ruined its economy in the 1980s.

At a session in the nation's Congress, which must approve all spending and tax changes, Economy Minister Jorge Remes Lenicov declared that, as promised, he had
submitted a "very austere" budget. "When we stopped paying the national debt, we were separated from the world economy," he said. "Now we have to act credibly

But the government is walking a tightrope, for its survival depends on avoiding the explosive social unrest that quickly toppled two of Duhalde's predecessors late last
year. Protest marches by hundreds of unemployed Argentines continued in the capital today, underscoring the danger facing the government if it is perceived as
imposing yet more pain on a populace already deeply aggrieved over a devaluation of the peso and a freeze on bank deposits.

Although the budget proposed retaining unpopular cuts in civil servants' wages, it would protect and even expand certain social programs, including food aid for the

Private economists worried that the government was relying on overly optimistic assumptions about the economy's performance in projecting that its budget would
cut this year's deficit to 3 billion pesos, which is equal to a bit more than $1.5 billion based on recent trading in foreign exchange markets. In particular, analysts said,
tax revenues are unlikely to be nearly as high as the government projects, because the economy is widely expected to undergo a wrenching recession this year, even
worse than the minus-4.9 percent growth projected in the budget.

"Governments usually come up with optimistic projections, but in Argentina it's more important than normally," said Federico Thomsen, a senior economist at ING
Barings in Buenos Aires. "Because the government has no access to credit, having defaulted to everyone on the planet, it means that every gap between revenue and
spending has to be explained. People are very worried that there will be more money creation than would be prudent, and we'll end up with inflation."

The IMF declined to comment on the budget, keeping a distance it has maintained from many of Duhalde's policy moves.

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