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Argentina Cash Trouble Raises Fears

November 11, 2000

BUENOS AIRES, Argentina (AP) _ Interest rates have soared, bond prices are at their lowest in two years and worries are increasing that even more financial troubles are in store for Argentina in the coming year.

With unemployment surging in the interior, violent social protests have accompanied the growing economic woes in South America’s second- largest economy.

On Friday, a protester at a rally of unemployed workers was shot and killed during clashes with police in northern Argentina. Angry demonstrators set public buildings ablaze and looted shops.

Upbeat economic news is scarce and watchers of emerging markets fear continued difficulties could spread to neighboring Brazil, the continent’s largest economy.

``Argentina is the crown jewel of emerging markets,″ said Freddy Thomsen, an economist with ING Barings in Buenos Aires. ``If Argentina were to suffer a severe shock it could continue to scare away investors from the region.″

Stock markets and currencies have sagged in recent weeks. The Brazilian currency, the real, plunged to a 12-month low Thursday; the Chilean peso this week dipped to its lowest level in a year.

An increasingly gloomy outlook has led to speculation that the International Monetary Fund may step in to help Argentina deal with its financial problems. Argentina’s current recession was brought on by the 1998 Asian financial crisis and exacerbated a year later by Brazil’s decision to devalue its currency.

In Washington, the IMF had no official comment Friday on the possibility of additional loans, saying discussions were continuing over the conditions attached to the existing IMF loan of $7.2 billion. Local newspaper reports said Argentina was pursuing additional financing to bring the package up to $10 billion.

Speaking to Dow Jones Newswires, an IMF official, who asked not to be identified, said it is prepared to lend ``billions″ of dollars in additional loans to Argentina.

During a nationally televised address Friday night, President Fernando De la Rua said his government was taking ``urgent″ measures to bring about an economic turnaround. Among them, he said, were moves to reduce the nation’s value-added tax, steps to privatize parts of the banking sector and deregulate the nation’s health care system.

``Argentina is in bad shape,″ the president said. ``Unemployment, social fragmentation, poverty, the domestic political crisis, coupled with an unfavorable commercial and financial situation is a combination that could lead our economy to a veritable catastrophe if we don’t act well and quickly.″

``We are going to recover the confidence ... wake up a sleepy Argentina ... we are going to compete and win,″ he said. ``It would be a true catastrophe if we didn’t act fast.″

He also acknowledged that this year’s deficit ``will be be bigger than expected″ because of Argentina’s less-than-expected growth this year.

The social unrest stems from unemployment of 15.4 percent _ a figure that is expected to rise. And other economic indicators are equally discouraging: the economy contracted by more than 3 percent last year, while growth estimates for this year have been scaled back to less than 1 percent.

The latest blow came this week when De la Rua’s government sold $1.1 billion in treasury bills at annual interest rates of up to 16 percent.

The malaise has fueled speculation about the future of Economy Minster Jose Luis Machinea, who helped devise De La Rua’s economic plan to raise taxes and cut government salaries to help curb the deficit.

De la Rua’s administration has also had to contend with a Cabinet shake-up and the resignation of the vice president.