Argentina minister appeals for calm

Domingo Cavallo: "Only one path" to take

Argentine Economy Minister Domingo Cavallo has appealed for calm following a sharp drop in the value of Argentine stocks in the financial markets and fears that the country would default on its debt payments.

There is only one path to resolve our problems - spend only what we collect in taxes

Domingo Cavallo
Economy Minister

Argentina shares slid by more than 13% shortly after the start of trading on Thursday, as the nation's financial crisis escalates, although a late rally left the Merval down just over 8% on the day.

Speaking after a surprise cabinet meeting called by President Fernando de la Rua, Mr Cavallo said his austerity plan was the only alternative to "returning to an absolutely disorganised, unjust economy".

Meanwhile the United States and the International Monetary Fund have indicated they had no plans to grant additional funds to help South America's third largest economy.

The Merval Index of leading shares fell to its lowest level since March 1995 when the government's latest package of economic measures was not well received by the markets.

And the gloomy mood was compounded when the credit agency Standard and Poor's cut the country's credit rating to 'B' minus.

Despite the austerity plan, fears are still growing that three years of economic stagnation could leave the country without the funds to pay its $128bn debt.

'No devaluation'

The debt mountain is equal to almost half of the country's gross domestic product.

Mr Cavallo announced on Wednesday that the government intended to reduce all government spending, including pension payments and salaries.

In an address on national television, Mr Cavallo said: "There is only one path to resolve our problems - spend only what we collect in taxes."

Mr Cavallo also tried to soothe the currency markets, saying "There won't be devaluations... we will defend at all costs the stability of the peso and the financial system."

But the markets remained unconvinced, and opposition parties dismissed the planned changes, with one deputy branding the reforms as "totally recessive".

And members of the ruling Alliance issued a statement to the government urging it to seek broad agreement with other political forces to quell the economic crisis.

Knock-on effect

The International Monetary Fund (IMF) warned on Thursday of the knock-on effect on growth prospects for emerging markets around the world.

"Market participants widely believe that a crisis in Argentina would lead to much reduced capital flows to emerging markets and thereby would reduce their growth prospects," the IMF said in its 2001 International Capital Markets report.

We will defend at all costs stability of the peso and the financial system

Domingo Cavallo

Investors worldwide, remembering how the so-called Asian crisis swept through markets in the late 1990s, have already been scrutinising the plight of emerging economies in the current period of global economic slowdown.

The fallout from Argentina's financial crisis has already spread through the Americas and across the Atlantic.