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Friday, 14 December, 2001, 14:14 GMT
Argentine economy deputy resigns
Argentine workers go on strike
The workers were drumming in their message to Cavallo
Economy minister Domingo Cavallo's deputy, Daniel Marx, has resigned from the government, just hours after a general strike brought the country to a standstill.

But he will stay on as a key negotiator representing Argentina in talks with the International Monetary Fund, which last week cut off a lending lifeline to the country and refused to release a $1.3bn (900m) cash injection into the economy.

"I have spoken with [Mr] Cavallo. We have agreed I would continue at the head of the debt talks, that it was not convenient to make a change at this time," Mr Marx said.

Mr Marx had had problems with Cavallo for some time now, so his departure came as no surprise said Barclays Capital analyst Pedro Perez.

The IMF has called on Mr Cavallo to slash spending before it agrees to hand over the money.

"The core of the problem lies in Argentina and it must be solved there," said the IMF's chief, Horst Koehler.

Violent clashes

On Thursday, offices closed, factories shut down production, and public transport was halted as a general strike brought Argentina's economy to a halt.

Rubbish collection was halted
Rubbish collection was halted
Angry workers across the country took to the streets, banging drums and chanting slogans, and there were violent clashes with riot police in several cities.

Recent tough economic measures, which have amounted to a severe belt-tightening exercise for the Argentine people, made the workers' blood boil over.

They are fed up with the way the country's four-year-old recession only seems to deepen, with living standards falling and unemployment rising.

Unpopular minister

The workers blame Mr Cavallo for much of their hardship.


The core of the problem lies in Argentina and it must be solved there

Horst Koehler
International Monetary Fund
After all, he is the man behind the recent sharp cuts in government spending, which were followed by curbs on cash withdrawals from bank accounts, they reasoned.

But with a national debt of $132bn, Argentina's cash crunch is so desperate, the government has had to raid cash piles set aside to look after its old, delaying payment to pensioners in the process.

These are desperate times, and Mr Cavallo has been forced to employ desperate measures.

Friday is pay-day for a $931m instalment on the country's debt and there is a risk that the country will fail to find the cash in time, causing it to default on its debt.

Technically, the country has already defaulted on its debt by forcing its creditors to accept lower returns on their Argentine government bonds, Mr Perez told the BBC's World Business Report.

But he pointed out that it has not yet missed a repayment on its debt.

Dollarisation

There are no quick fixes to Argentina's economic woes.

Failure to service its massive debts would lead to the biggest debt default yet by any country.

Finding the money to pay the debts is a tricky task.

One way to boost economic growth would be to devalue the peso.

This would reduce the prices charged for Argentinean goods overseas and, consequently, boost exports.

But because the country's debts are held in dollars, a devaluation would make it much harder to repay the country's debts.

"A devaluation would be disastrous," said former prime minister Carlos Menem following an emergency meeting with his successor, Fernando de la Rua.

Another option would be dollarisation; that is the substitution of the peso with the dollar.

This would eliminate exchange rate risk and interest rates would come down, said one analyst.

However, linking to the dollar could make Argentina's exports less competitive internationally.

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Pedro Perez, Barclays Capital London
"They have already technically defaulted. What they haven't done yet is miss a payment. This would be the first."
See also:

14 Sep 00 | Business
The IMF's pragmatist
13 Dec 01 | Business
Argentina hit by protests
13 Dec 01 | Americas
Argentina delays pension payments
10 Dec 01 | Business
Argentina in new bid to cut debts
06 Dec 01 | Business
IMF blocks loan to Argentina
03 Dec 01 | Business
Argentina curbs cash withdrawals
25 Nov 01 | Business
IMF spotlight on Argentina
03 Dec 01 | Americas
Fear of ruin haunts Argentines
11 Dec 01 | Business
Cavallo faces the end again
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