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Tuesday, 1 January, 2002, 12:57 GMT
Argentina faces grim economic future
Caretaker president Eduardo Camano
After a week of President Saa, Mr Camano becomes number three in two weeks
By BBC News Online's Jeremy Scott-Joynt

Argentina is entering the New Year as the pariah of the global economy - and on its third president in two weeks.

After $22bn in loans in the past year from the International Monetary Fund, the tap is now firmly turned off.

Presidential hopeful Eduardo Duhalde
...while Duhalde is tipped to become number four
And thanks to the decision by former President Adolfo Rodriguez Saa - admittedly in most observers' eyes an inevitable one - to default on private sector loans, the short term presents few upsides for Argentina's 36m-strong population.

Mr Saa's plans for a third currency - the argentino - to gradually supplant the peso and avoid the latter's immediate devaluation are dead.

The question now is whether Argentina's fractious political class can pull together long enough, and reliably enough, to crawl back from the brink. Unfortunately, few either within Argentina or without have much faith that they can.

Just out of reach

It is not as if Washington DC - home of the IMF as well as of the US government - is not willing to voice support for the crisis-ridden country.

In the past few days, President George W Bush promised to work with whoever becomes Argentina's next president.

The current incumbent - Senator Eduardo Camano, the leader of the majority Peronist Party in the Chamber of Deputies - is only filling in.

Policewomen outside Government House in Buenos Aires
Argentine citizens have made their feelings known

At 1900 GMT, Congress will meet to choose a new interim president to take the country through to elections now postponed till the end of 2003.

The front runner is thought to be another senior Peronist, Senator Eduardo Duhalde.

And the IMF, in which the US is the biggest shareholder, is also ready to talk to the next president - as long as his or her economic policies are in line with the balanced budgets and austerity drive it has always demanded.

No change

But that still means the onus is on Buenos Aires to come up with a government that can get on with the hugely difficult task of sorting out a country with 25% unemployment, plummeting exports, $132bn in external federal debt and an abysmal reputation in international circles.

Years of over-spending, corruption and mismanagement - largely, it has to be admitted, on the part of the Peronists themselves - have left Argentina with little credibility.

Argentine government bonds are trading at a quarter of their face value, while lending to Argentine businesses faces a "risk premium" of more than 40% on top of normal interest rates.

In fact there are many countries with worse debt burdens, both in absolute terms and relative to the size of the economy. But the inability of Argentina's politicians to see the big picture means the risks are exacerbated.

The one-to-one link between the peso and the dollar has restored some faith in recent years, removing the thousand-per-cent inflation common before the 1990s, but at the cost of exports which are priced out of their target markets.

Catch-22

And now the country faces a lose-lose situation.

Demonstrators in Chapadmalal
The protesters have been drawn from all classes

Rapidly increasing poverty makes the sharp cuts in social programmes a balanced budget would require a political minefield.

Devaluation might help exports, but at the cost of further pauperising the population and making external debt repayments even more difficult.

So far, the Peronist Party seems unable to reach the hard decisions without fracturing into squabbling factions.

And from the evidence of mass protests on the streets, the population at large seems to be coming to the conclusion that the parties as they currently exist are incapable of looking at the country's interests as a whole, too far gone in infighting and pork-barrel.

No help

So Argentina is on its own, until and unless the Peronists can submerge some of their more populist and back-biting instincts.

And the prospect of Mr Duhalde taking office will not fill the citizenry with confidence - despite suggestions from senior Peronists that he will form a cross-party government of "national salvation".

Even during his short term, Mr Saa had to sack one of his ministers for his close links to corruption in the Peronist government of Carlos Menem in the early 1990s, and Mr Duhalde is also an alumnus of those tainted years.

Argentine citizens may well stay on the streets for some time to come. For many of them, after all, their jobs are no more, and there is nothing else for them to do.

See also:

30 Dec 01 | Americas
Argentine cabinet offers to quit
21 Dec 01 | Business
Bush backs IMF austerity measures
31 Dec 01 | Americas
Argentina's toughest job
28 Dec 01 | Business
Currency fears hit Argentine shares
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