ARGENTINA: Government in trouble over austerity plan

March 28, 2001
Issue 

BY SEAN HEALY

The Argentinian government of President Fernando de la Rua is in crisis and its economic plans are in tatters, after protesters took to the streets in anger at a new austerity package which included savage cuts in government spending.

The package, announced by economy minister Ricardo Lopez Murphy on March 16, would have cut government spending by more than US$1.9 billion this year, by almost US$2.5 billion in 2002 and by US$3.5 billion in 2003. Education was to be a particular target for budget reductions, to the tune of US$2 billion according to one estimate.

The cuts were aimed at reducing the government deficit to within 2.4% of gross domestic product, a condition of a US$40 billion loan deal signed with the International Monetary Fund in December.

The response from Argentinian workers and students was immediate. Anger with de la Rua's austerity plans has been brewing during the entire 15 months of his administration and in the last six months has boiled over into several large national strikes against his economic policy.

Within hours of the announcement of the plan, university and high school teachers and students had joined with retirees, unionists and the unemployed to blockade streets throughout the capital, Buenos Aires. The protests continued for days.

On March 21, the whole nation ground to a halt in a general strike called by left-leaning unions led by the teachers' union, the CTERA.

The swift response has forced de la Rua onto the back foot and the country's stock and bond markets into a nose-dive.

Within two days of the announcement of the package, junior partner Frepaso had split from de la Rua's governing coalition, forcing the president to seek a "government of national unity" with the Peronist Justicialist Party and the right-wing Republican Force party.

Within three days, Lopez Murphy, who had been in the economy minister's job only two weeks, announced his resignation from the post.

Within five days, de la Rua had appointed as the new economy minister Domingo Cavallo, enormously popular in domestic and foreign business circles as the architect of Argentina's 1991 decision to peg its peso to the US dollar.

And within a week, rumours were circulating that de la Rua would be forced to resign.

Cavallo's hastily constructed plan for the economy includes no mention of Lopez Murphy's planned budget cuts, instead centering on attempts to improve Argentina's international "competitiveness".

However, at the annual meeting of the Inter-American Development Bank on March 19, de la Rua made it clear that, whatever happened, the peg against the US dollar and the firm commitment to servicing the country's foreign debt would remain, as would the government's commitment to the December IMF package. These are the very policies which the government's unionist opponents claim are the root cause of the country's economic stagnation.

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