Argentina Economy

The Argentine government's economic team resigned Friday in the face of a deepening economic crisis just six weeks before the presidential election, in an attempt to rescue the campaign of the ruling party's candidate. Economy Minister Juan Sourrouille, Treasury Secretary Mario Brodersohn, Central Bank Governor Jose Machinea and other senior economy officials stepped down one day after the governing party's candidate, Eduardo Cesar Angeloz, publicly criticized their policies.

For months, the news here has been dominated by a recurring image: the harried faces of Argentine officials explaining again and again what their country must do to please the technocrats at the International Monetary Fund, seemingly the only force capable of rescuing this troubled nation from economic catastrophe. As the country sullenly waits with hat in hand for an IMF bailout, many Argentines are looking for another kind of savior.

With a default on most or all of Argentina's $130 billion in government debt all but certain, attention now turns to the fallout for that nation's economy, including harm to its banking system. On Friday, bond rating agency Fitch Inc. downgraded Argentina's debt to just a cut above default status, discounting chances of an orderly swap of debt as proposed Thursday night by President Fernando de la Rua.

The president threatened to resign, but his aides said later that he wasn't serious. The economy minister, however, did resign, not long after a group of angry bank depositors shut down Congress and torpedoed his plan to rescue Argentina's ailing economy.

In a stack of Argentine newspaper clippings on Domingo Cavallo's first four years as economy minister, what stands out is his headline-grabbing propensity for controversy and conflict. Examples: In December, 1991, Cavallo blasted the rector of the University of Buenos Aires, declaring that the institution was "very badly managed" with "astonishing waste." The rector counterattacked in a public letter he titled "Liar Cavallo."

Major Latin American bourses will watch Argentina this week for signs that the government can pull the region's No. 3 economy out of 2 1/2 years of stagnation, market watchers said. In an effort to revive the economy, Argentina's Senate over the weekend passed into law a tax on financial transactions.

* Argentina's economy contracted in the fourth quarter for the first time in two years as high interest rates, poor commodities prices and slowed trade with Brazil forced producers to rein in output. Argentina's gross domestic product fell 0.5% in the quarter compared with the same period in 1997. For all of 1998, Argentina's GDP expanded 4.2%, less than half the 8.6% for 1997. The fourth-quarter decline--in line with a 0.

Part of a financial aid package led by the International Monetary Fund to inject liquidity into Argentina's indebted economy will be in cash, a senior Economy Ministry official said. The aid hinges on Latin America's largest foreign borrower imposing spending caps for five years, ending public pensions and raising women's retirement age to 65 to narrow the chronic gap between government income and spending that threatens Argentina's ability to pay back its debt.

In his first public address since taking office two days earlier, Argentine President Eduardo Duhalde acknowledged Friday that the nation will have to devalue its currency, abandoning the peso's 10-year parity with the U.S. dollar. But he declined to say how much value the peso might lose or disclose details of a sweeping economic "salvation" plan he has sent to Congress for debate and approval over the weekend.

Economy Minister Domingo Cavallo said Friday that Argentina is weathering the storm of the Mexican financial crisis and may even end up benefiting from it. The devaluation of the Mexican peso has shaken stock markets in other Latin American countries as cautious foreign investors have withdrawn capital from the region. At the same time, foreign bankers have tightened credit to Latin America.

The landing craft came ashore on a beach of white sand and turquoise water, a solitary spot where Patrick Watts and his friends chased away the penguins and raced motorcycles in their youth. On that April morning, it was thousands of Argentine teenagers who spilled onto the beach.

Argentina's economic crisis took a new, potentially calamitous turn Monday as the value of the national currency plummeted despite desperate measures by the government over the weekend to prevent its slide. The devaluation comes as President Eduardo Duhalde faces new questions at home and abroad about his government's ability to lead the country out of its economic and social crisis. Valued at one to the dollar in December and at 2.

U.S. authorities on Wednesday banned Argentines from coming to the United States without a visa because of worries about a growing exodus of visitors seeking to flee their economically ravaged nation and find a permanent--and illegal--home in America.

Following days of uncertainty, hoarding and repeated calls for calm, Argentina allowed its currency to float freely against the dollar for the first time in a decade Monday. The peso slipped slightly in value but did not suffer the free fall many feared. Hundreds of people lined up outside exchange houses in Buenos Aires, the capital, where the dollar sold for about 2.1 pesos, a drop of about 5% from the peso's unofficial value Friday.

Half a century ago, the Caronna family bade farewell to Italy. Estela Caronna and her three children packed into a bus in Acerenza, a hillside town in Potenza province, and traveled by boat to a South American country whose very name was to them synonymous with affluence. None of them ever returned. Today, in an Argentina that every day becomes poorer and more violent, Caronna's granddaughter dreams of that village she's never seen.

Thousands of Argentines took to the streets early Saturday, banging pots and pans in the latest peaceful protest against a government unable to end a chaotic recession in its fourth year. President Eduardo Duhalde on Friday unveiled a sweeping plan to scale back government spending. But thousands of angry protesters responded with a march on the presidential palace, yelling insults at the beleaguered president.

Banks and foreign exchange houses were closed Monday to give them time to digest a government-ordered 34.5% currency devaluation, along with the postponement of payments on the nation's massive internal debt. Initial reaction was mixed over the plan, announced late Sunday, which was the second severe economic adjustment in five months. Spokesmen for organized labor criticized it while many businessmen said the changes were necessary to stabilize the economy.

Argentina's economy minister, Domingo Cavallo, will try this week to convince U.S., European and Asian investors that the panic about Argentine debt will be quelled by a major new bond swap. "The high interest rates and mistrust of bondholders are like a high fever. We have to bring it down. I have tried and will try this week to bring down this financial fever," he told Argentine newspaper Clarin over the weekend.

Argentine President Eduardo Duhalde took the unprecedented step Monday of suspending all court challenges to an unpopular banking freeze for 180 days in an attempt to shore up the teetering financial system. The move, outlined in an executive decree, came after a surprise Supreme Court ruling Friday declaring the banking restrictions unconstitutional. The decree sets up a likely showdown among the three branches of government.

Argentina's Supreme Court ruled Friday that a widely hated banking freeze is unconstitutional, striking a surprise blow at government efforts to shore up the teetering financial system. The court voted 5 to 0 against the freeze, ruling in favor of plaintiffs who had demanded their trapped savings.