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The BBC's Tom Heap
"The economy minister pushed for a law to tie the peso to the dollar, but this didn't stop borrowing"
 real 28k

The BBC's Stephen Gibb
"Without the commitment of the governors the spending cuts would not eliminate the deficit"
 real 28k

Tuesday, 17 July, 2001, 10:14 GMT 11:14 UK
Argentine austerity plan backed
Argentina's economy minister Domingo Cavallo
Domingo Cavallo spells out the need for cutbacks
Opposition provincial governors in Argentina have agreed to cut provincial spending in support of the government's plan to save the country from bankruptcy.

Almost half of Argentina's spending deficit comes from the country's provincial and municipal budgets, over which the central government has no direct control, says Tom Gibb, BBC's correspondent in Buenos Aires.

The government pledged last week to cut the country's deficit to zero, as part of a plan to avert default on $128bn of debt.

Although opposition governors have agreed to support the government's goal, it remains up to each of them to decide how.

Implementation worries

Several governors emerged from their meeting with president Fernando de la Rua vowing they will not cut either public sector salaries or pensions.

Governor Juan Carlos Romero of the Northern province of Salta said the Peronist party governors agreed "that the zero deficit should be sought after" but added "each jurisdiction must do it within the norms it deems appropriate".

"All 14 governors will sign the accord," said Mr Romero, one of five governors who negotiated with the president.

Stock market players remained sceptical, waiting to see if the government has made important concessions.

"I still have my doubts about whether the markets will have a party," said Rafael Ber, an analyst at Buenos Aires-based Argentine Research.

"The proof will be in what this deal is and if it is completed."

Cutting Argentina's debt

Economy minister Domingo Cavallo announced last Wednesday that the government would reduce all government spending, including pension payments and salaries.

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

Domingo Cavallo
Economy Minister
The government is trying to cut a debt mountain equal to almost half of the country's gross domestic product.

The measures were not well received by the markets as Argentina shares slid by more than 13% shortly after the start of trading last Thursday.

A government debt auction last Wednesday, which led to soaring interest rates, also sent the markets into decline.

The Merval Index of leading shares hit its lowest level since March 1995.

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

'No devaluation'

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

Mr Cavallo has 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."

The IMF warned on Thursday of the knock-on effect on growth prospects for emerging markets around the world.

The fallout from Argentina's financial crisis has already spread through the Americas and across the Atlantic, putting pressure on emerging-market stocks and bonds.

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