Argentine court threat to IMF deal

President Duhalde hopes to secure an IMF loan

The Argentine government has warned that it cannot afford to uphold a court ruling, which orders it to reverse salary and pension cuts introduced last year.

Late on Thursday, Argentina's supreme court ruled that the cuts introduced last year were unconstitutional.

Former economy minister Domingo Cavallo cut salaries and pensions in an effort to lower government spending and to appease the International Monetary Fund (IMF).

On Friday, the government said it would respect the decision but cabinet chief Alfredo Atanasof warned that it did not have "the resources to face these costs". The salary cut saved the government some $2.25bn (£1.48bn) a year, but sparked widespread protests.

"The cut in salaries is neither reasonable nor fair," the Supreme Court ruling said.

The news is unlikely to help Argentina in its protracted discussions with the IMF to secure fresh lending.

The debt-strapped country hopes to win billions of dollars of aid from the international lender, which wants Argentina to first reform its financial management.

Poverty trap

The ruling involves just one civil servant, but several other cases are now expected to follow.

The news of the court decision is likely be welcomed by the millions of Argentines who have been plunged into poverty.

More than half of all people in Argentina are now living below the poverty line, the National Institute of Statistics and Census said earlier this week.

Poverty is defined as a family of four with a monthly income below $167.

Cash plea

Last week, Argentina submitted a fresh request for financial aid from the IMF.

The IMF cut off most financial support to Argentina late last year after it defaulted on its $140bn of debt.

The Fund has also so far resisted calls for further loans, until Argentina pushes through reforms to control its spending.

"The decision over the 13% cut shows a degree of volatility" in Argentina, Merrill Lynch analyst Pablo Goldberg said.

He added: "This is clearly the product of a fight between different powers in Argentina and it makes it quite complicated to think what kind of programme you can give to a country in this ongoing state of debate."