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Friday, 24 November, 2000, 13:37 GMT
How Argentina's revival went wrong
Argentinian president, Fernando de la Rua
Fernando de la Rua: a challenging first year as president
When President Fernando de la Rua said in March his priority was "to grow, grow, and grow", Argentinians assumed he was referring to the economy.

Their hopes were misplaced. The Argentinian government has trimmed its forecasts for economic expansion this year from 4% to less than 2%.

The most notable growth has occurred in the burden of problems afflicting a country which thought it had left its economic troubles behind with the last millennium.

The 36-hour general strike which started on Thursday is the latest in a run of disputes, scandals and crises to beset Argentina in what was meant to have been a year of revival.


Mr de la Rua assumed power on 10 December last year amid expectations that he would usher in a rapid economic recovery.

Country profile - Argentina
Population: 37m
Area: 2.8m sq km
GDP: $374bn

Major trading partners (1997)

1: Brazil, 27%
2: US,14%
3: Chile, 4.6%
4: Italy, 4.5%
5: Germany, 3.9%

The Argentine economy, hit by a currency devaluation in Brazil, its largest trading partner, had shrunk by 3% in 1999.

But the president hoped a tax-raising package his government introduced, with the backing of the International Monetary Fund, would foster revival by reassuring investors that Argentina would be able to repay its sizeable national debt.

And, by clearing the way for lower interest rates, it would reduce companies' borrowing costs and so promote corporate growth.

Instead, the tax rises, which were largely aimed at businesses, seem to have stifled the performance of firms struggling to compete against Brazilian competitors bouyed by their cheaper currency.

Problems for Argentinian exporters have only been exacerbated by the continued strength of the US dollar, to which the peso has long been pegged.

Unemployment has risen above 15%. And those in work have often seen their wages cut.

Farmers struggle

The country's vital agricultural sector - Argentina is the world's fourth biggest beef exporter and accounts for 15% of world soya production - has struggled under blows from fortune and fiscal policy.

Soya bean pods
Soya: Argentina produces 15% of the world crop

The country's $500m chicken industry has been undermined by cheap Brazilian imports.

The country's beef farmers, once the world's number one exporter, have watched markets dry up following an outbreak of foot-and-mouth in August. The discovery came only two months after the country received a coveted clean bill of health.

Soya exports, meanwhile, have suffered from the country's reliance on genetically modified types, which environmentalists particularly in Europe have fought against.

Fuel protests

On tax, local authorities, whose levy revenues have been dragged down by the economic slump, have found landowners an easy target.

And, as elsewhere, fuel levies are considered too high - one area where the country has led the world in 2000 is over fuel tax protests.

The government in July caved into pressure from farmers and introduced fuel subsidies for agriculture.

Not that this concession prevented a hauliers strike in October, as the European-born anti-fuel tax demonstrations spread west.

E-commerce slump

Global factors also affected another key area of hope for Argentine - the new economy.

Shareholder information on ElSitio website
ElSitio's share price: unhappy reading

The slump in technology stocks worldwide has choked a Silicon pampas sector which had defied Argentina's 1999 slump.

A study earlier this year ranked the country fifth in the world in its number of registered domain names

Eleven of the 15 most-visited Spanish language sites are Argentinian, the study said, and popular destinations include the news, shopping and e-mail address ElSitio.

Shares in the site, which is listed on Nasdaq, have slumped to less than $2 from a high of more than $40 last December, when it was floated.

Bribery scandal

Politics also has secured a place in Argentina's current annus horribilis with a bribery scandal in which two politicians of Mr De la Rua's Radical party are alleged to have secured votes by paying off opposition senators.

The coalition between Radical and the left-wing Frepaso party nearly fell apart last month when Carlos Alvarez, Frepaso leader, resigned as Argentina's vice-president over the promotion of the accused politicians in a cabinet reshuffle.

So a lack of confidence in politicians has added to woes of low wages, high unemployment and tough business conditions.

And, after the passing of the latest budget designed to reverse the tax increases implemented earlier, the country will have $700m in state spending cuts to swallow.

Its farms may be struggling, but Argentina has produced the perfect conditions for nurturing the civil unrest witnessed in the general strike.

Global repercussions

The action has been timed ahead of meetings between the government and IMF leaders who, having supported the tax rises, are now backing the tax cuts package.

Jose Luis Machinea, Argentina's economy minister
Jose Luis Machinea: steering through reforms

The meetings are designed to secure Argentina $20bn in IMF assistance, enough to service the country's international debt repayments next year.

The country's economy minister, Jose Luis Machinea, said this week he is confident of the viability of his proposals.

The world, not just Argentinians, must hope he is right.

In increasingly globalised times, another duff note from a country which entered the last century as a leading voice could destroy the harmony of the whole world economy.

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23 Nov 00 | Business
Argentina's economic tightrope
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