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Wednesday, 22 August, 2001, 12:35 GMT 13:35 UK
Argentina pins hopes on IMF loan
Skeletons outside Congress in Buenos Aires
There are daily protests outside the Argentine Congress
By BBC News Online's regional analyst Nick Caistor

The new $8bn loan facility agreed between Argentina and the International Monetary Fund is conditional on implementing more austerity measures, especially in the provinces.

But it is here that the recession of the past three years has hit the hardest.

As the central government has attempted to reduce its deficit, it has cut back on subsidies to the poorer provinces in the north and east of the country.

This has meant unemployment rising in some regions to more than 20%, and a sharp increase in poverty levels.

Wages cut

Those who have remained in work have also been badly affected.

State sector workers - civil servants, teachers, and others - have seen their wages cut by up to 13% by government decree, and old age pensioners have seen the value of their payments reduced.

Policeman with new bonds
Some have dismissed the new bonds as "Monopoly money"
The Argentine government is determined not to fuel inflation, so that the parity of the Argentine peso to the US dollar can be maintained.

But this week the largest provincial administration, in Buenos Aires province, ran out of cash to pay salaries.

Instead it has introduced "patacones", bonds which it hopes will be recognised as having the same value as the national currency.

The scheme was introduced on Tuesday, and seems so far to be working, although press reports from Argentina say there has been some reluctance to hand back change in pesos.


The patacones, which will be paid to state workers who earn more than $740 a month, can be used to buy food, settle bills and pay federal taxes.

The money saved on salaries will be used to pay back some of the interest on the province's estimated $25bn debt.

In theory the bonds will pay 7% interest and be redeemable in a year, but many civil servants fear the patacones will be subject to rapid devaluation.

The American fast-food giant McDonald's marked the occasion by launching a special new "Patacombo" deal, comprising two cheeseburgers, fries and a soft drink for five patacones, the equivalent of $5.

The federal government hopes to extend the bond scheme to other provinces, in order to improve finances.


Previous austerity measures have been greeted with protests throughout Argentina.

Police use teargas on rioters
Rioters have clashed with police in several provinces
Teachers in Buenos Aires province have begun an indefinite strike in protest at the wage cuts, and Tuesday saw a march through the capital organised by university teachers.

The International Monetary Fund has agreed to lend Argentina an extra $8bn to shore up its ailing economy.

The new funds will boost the IMF's support for Argentina to $22bn, up from the current level of $14bn, IMF Managing Director Horst Koehler said.

The Argentine government hopes this international support will boost investor confidence in Argentina, leading to an economic recovery.

This recovery is necessary if Argentina is to avoid defaulting on its huge foreign debt.

But correspondents say this upturn must come soon, or social unrest could become even more widespread.

Michael Redrado, Argentine economist
"Argentina needs to deliver"
Alicia Castro, National Congress deputy
"Unemployed people in Argentina gain nothing"
See also:

21 Aug 01 | Business
Argentina pays workers in bonds
19 Aug 01 | Business
Bush vows US help on Argentina
02 Aug 01 | Business
'Give us a chance' says Argentina
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