Argentina's economy in doldrums

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Argentina's economy in doldrums

Consumer confidence continues to fall and interest rates have soared. Tax revenues are sharply off. Fears again have returned of a debt default or even worse - a devaluation. After repeated international bailout packages, Argentina continues to falter despite seven government attempts to pull South America's third-largest economy out of the doldrums.

Statistically, there is little to suggest a turnaround is imminent. Tax revenue plunged 14% last month, compared with a year earlier. Consumer confidence has dropped to a three-year low, off nearly 25% since 1998.

Automobile and supermarket sales have also slackened, further evidence that spending has contracted in an economy largely driven by domestic consumption.

Signaling rising concerns over Argentina's ability to service its $136-billion debt, rating agencies Moody's and Standard & Poor's last week lowered Argentina's creditworthiness for the fifth time this year, citing the deteriorating economy.

That has left economists and analysts speculating about the chances for new growth amid increasing worries about capital flight.

"We are at the point where I don't see growth coming back into Argentina. They have a lot financing issues, tax revenues are down, capital flight continues. We may be reaching the point of no return," said Riordan Roett, a Latin American analyst at Johns Hopkins University.

He said such unfavourable factors only raise the odds that Argentine may be forced to dollarize its economy, devalue its peso or default on its debt.

With global commodity prices and foreign investment falling, plus the Argentine peso tied to an increasingly strong dollar, Argentina has few resources and limited options for taming the crisis.

One possibility being studied by the government is a debt swap of some $15-billion in government bonds. The deal, however, would require banks and pensions funds to accept them at lower than interest rates - a move some on Wall Street say amounts to a debt default.

"The debt exchange may be perceived by ratings agencies as a partial default of public sector obligations," JP Morgan said in a report issued on Monday.

In August, Argentina narrowly avoided a default on its debt obligations after the International Monetary Fund agreed to extend a $8-billion emergency aid package - the second multibillion dollar loan package in a year.

But with cash in short supply, Argentina has been forced to reorganize itself financially. And that has meant what officials say is an all-out attack and a decades-long practice of using government funds for patronage in the provinces or monies siphoned off the country's abused national health and social welfare system.

The harsh austerity program, however, has not done enough to narrow a projected $1.5-billion deficit for this year. Hoping to close the gap, in De la Rua has adopted a so-called Zero Deficit plan and cut public workers? salaries and pensions by 13%.

With tax money dwindling, many analysts doubt De la Rua will be able to implement another unpopular cost-cutting plan and simultaneously breath new life into the ailing economy, now limping into its fourth year of recession.

On Sunday, De la Rua's ruling coalition suffered a defeat in midterm congressional elections widely seen a rejection of his efforts to right the economy.

Any appeals for increased belt-tightening will surely only unnerve weary Argentines, who are have begun questioning whether the country's politicians can make the same sacrifices they are demanding.

"It's awfully hard to swallow these cutbacks when the people making these decisions are hardly affected," said Adriana Fano, a 47-year-old seamstress.

"We're forced to scale back, but they aren't."

Alejandro Viera, a camera repair shop owner, said the stagnant economy had brought business to a standstill. He added he was doubtful of the government's ability to turn things around.

"I don't see that there's any clear way out of this situation," he said.

http://www.bday.co.za/bday/content/direct/1,3523,949217-6078-0,00.html

-- Martin Thompson (mthom1927@aol.com), October 17, 2001

Answers

There economy is switching to a barter economy because there is over 16% unemployment. No wonder there tax revenue is drying up. Its a ONE WAY ticket in Argentina. That should be the next international financial crisis. I wonder who is left holding the bag on there 100 billion plus debt?

-- Guy Daley (guydaley1@netzero.net), October 18, 2001.

Let's see...the American Taxpayer, then again it could be all the middle (few left) class and downright poor, taxpayers in the US. Or it just might be you and m

-- don park (dpark@magick.net), October 18, 2001.

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