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Saturday, 1 September, 2001, 04:47 GMT 05:47 UK
Argentina's economy set to shrink
Demonstrators outside the presidential palace in Buenos Aires
Protesters want the government to take action
By Peter Greste in Buenos Aires

The Argentine Government has admitted that its gross domestic product (GDP) will shrink by almost 1.5% this year.

The new figures revise forecasts which originally predicted growth in the Argentine economy.
Domingo Cavallo, the Argentine Economy Minister
Gloomy forecasts for the Argentine economy minister

Despite the new figures, Economy Minister Domingo Cavallo, has said the government will maintain its zero deficit spending policy.

The new figures are not encouraging for Argentina.

The government had budgeted for growth in gross domestic product of around 2% this year.

Zero deficit

With that in mind, Mr Cavallo, said he could maintain a zero deficit budget, spending only as much as the government takes in taxes.

But now GDP is predicted to fall by 1.4%.

That means less taxes and less spending at a time when the economy desperately needs some new cash to kick it back into life.

The new figures also make it increasingly difficult for Argentina to pay its debts.

The interest bill alone accounts for 20% of the budget and that is expected to climb to 25% in 2002.

Default

The key question for investors now is whether Argentina will default or restructure its debts.

Closing-down sale in Buenos Aires shop
Many shops in Buenos Aires are going out of business
In a news conference, Domingo Cavallo insisted he will do neither and that he can turn the economy around.

But that may take more time than the country has.

There is already growing social unrest over state wage and pension cuts of 13% - unions have warned that they will not tolerate a peso more in cuts.

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The BBC's Peter Greste
"The new figures are not encouraging for Argentina"
See also:

22 Aug 01 | Americas
Argentina pins hopes on IMF loan
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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