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Feuding Delays Argentina Debt Plan

November 1, 2001

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BUENOS AIRES, Argentina (AP) _ A political impasse with 23 provincial governors continued to stymie efforts by President Fernando De la Rua to win over key allies for a plan to restructure $132 billion in debt and avoid default.

Still lacking crucial political support for his recovery plan, the president declined to venture exactly when he would announce the proposed debt swap and other measures anxiously awaited by Wall Street and emerging markets worldwide.

``The truth is that time is running out. There isn’t a lot of space to maneuver,″ local economist Nicolas Caruso warned, echoing a widely held view that Argentina’s options for turning around the crisis are dwindling.

De la Rua was expected to unveil his latest economic recovery plan in a national address late Thursday.

The unemployment rate has been stuck in double digits for years, the economy is stumbling after seven punishing rounds of austerity measures already, and some cash-strapped provincial governments have resorted to paying state workers partly with bonds in lieu of cash.

With state coffers dwindling, De la Rua is locked in a bitter political impasse with the nation’s 23 provincial governors over the federal government’s failure to pass along more than $500 million in tax revenue owed the provinces.

In Washington, the International Monetary Fund signaled Thursday that a tax-sharing agreement between De la Rua and provincial governors which is intended to balance Argentina’s budget and achive a so-called ``zero deficit″ target by year’s end is a key pillar of support for any recovery plan.

An IMF official, Thomas Dawson, told reporters the agency had no plans now to speed the release of bailout loans that could provide the cash-strapped government with funds to pay its hefty debt-servicing charges. Argentina’s next IMF loan is a $1.3 billion installment that will come available in December.

Past flare-ups of the debt crisis this year were eased only when the IMF announced fresh infusions of emergency loans, but Dawson told a briefing that releasing any funds ahead of schedule was ``not in the cards″ at this time.

Argentine governors resumed meetings Thursday to discuss the federal government’s proposal for spending cuts and tax-revenue sharing measures needed to balance the Argentine budget and satisfy the IMF.

But differences remained between the two sides.

``A pact with the nation is a long way off unless they pay the people,″ warned Gov. Carlos Ruckauf, an opposition Peronist for powerful Buenos Aires province. He insists the federal government is holding back revenue the provinces need to pay state workers and meet their own obligations.

Market watchers noted that each passing day did not help the crisis, but warned it was better for the president to shore up domestic support for a plan that was as complete as possible.

``Obviously it would be better to have the measures announced sooner rather than later but we also want solid measures,″ economist Rafael Ber said.

A restructuring of the debt is expected to be one of the plan’s key components. Other measures could include payments to low-income households and the unemployed as well as sales tax relief to spur consumer spending.

However, critics say far more needs to be done to encourage consumers to begin spending again, a necessary step to raise badly needed tax revenue to pay off the debt.

Tax collection plunged 14 percent in September, hampering Argentina’s ability to meet upcoming debt payments. Officials acknowledge they must come with $1.1 billion to service the debt this month and another $774 million in December.

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