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
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
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.