Argentina's economic tightrope

IMF: "Reform programme must be implemented"

Angry trade unionists have gone on strike in Argentina, making investors jittery. BBC economics correspondent, Andrew Walker reports.

Argentine president Fernando de la Rua is caught between two chairs.

President de la Rua: curb public spending

The workers are angry about his government's plans to curb public spending in an economy already marred by difficulties.

But if the government fails to strengthen the country's finances, it will not secure essential new loans from the International Monetary Fund.

"It's not enough to announce it, the programme has to be implemented," IMF first deputy managing director Stanley Fischer said on Thursday.

If Argentina fails to do so, it will not get access to an aid package from multi-lateral lenders, Mr Fischer warned.

Difficult debts

In the financial markets there are concerns that Argentina might have difficulties making the debt repayments that will be due next year.

Two leading international credit rating agencies, which advise financiers on how risky borrowers are, have voiced concerns about Argentina.

The IMF is also concerned and has been negotiating additional loans to help Argentina avoid default.

An IMF official said a team is expected to start further talks in Buenos Aires shortly.

Developing risks

The markets have become more nervous about developing countries in general, as illustrated by the rising interest rates on these countries' debts.

Argentina is one country that is still suffering the effects of the wave of developing country financial crises that began in Asia in 1997.

In 1999, the problem was compounded when Brazil devalued its currency, leaving Argentina to nurse a sudden decline in competitiveness - the peso is rigidly linked to the US dollar.

That year, the country went into recession.

The government's finances suffered from the lower tax receipts that always result from weaker economic performance.

The reforms

President de la Rua plans to reform pensions and has made a spending control agreement with the provincial governors.

But such policies are nearly always unpopular.

They, and the underlying economic problems, are the background to the planned strike.