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Hi, Lorne. They will get much stronger.
07/14 21:20
Argentina Fails to Reach Deal With Peronists on Cuts (Update3)
By Helen Murphy
Buenos Aires, July 14 (Bloomberg) -- Argentine President Fernando de la Rua was unable to garner support from opposition governors for a plan to cut spending and erase the budget deficit, measures needed to avoid a debt default.
After four hours of meetings with 13 Peronist governors, de la Rua and members of his cabinet ended talks late last night without securing backing for the cuts. De la Rua and the governors plan to resume talks Sunday, the government said.
``I'm sure they will reach agreement before the markets open on Monday,'' said Rafael Ber, an analyst at Argentine Research. ``Last night was just the Peronists showing a bit of muscle and that's all. They realize what's at stake.''
The government needs the political backing of the opposition governors to help carry out $1.4 billion in cuts this year in government salaries and pensions to balance the budget in the second half of the year. The government is also pushing the provinces to cut spending.
Argentina must reduce spending to help pay off $8.8 billion in debt coming due this year. Bonds plunged to a record low this week and overnight interest rates soared as high as 400 percent as investors were concerned that Argentina, mired in a three-year recession, will default on its $130 billion debt.
Talks with governors will resume tomorrow, said Cabinet chief Chrystian Colombo. The two sides plan to consider proposals from some members of the ruling Radical party to exempt low-income pensioners from the cuts, Colombo said. About 70 percent of pensioners would not be affected, he said. Clarin newspaper reported pensioners earning less than 300 pesos ($300) a month would be exempt.
``The government's objective on the issue of pensioners is to achieve the most fairness possible, in that sense the government proposal will affect only 30 percent of pensioners,'' Colombo said, adding that more details would be announced tomorrow.
Still, Felipe Sola, Deputy Governor of Buenos Aires, Argentina's most populous province, said the Peronists may not meet again until the ruling coalition can sort out its internal problems.
``There were no agreements reached because there is still no clarity on the measures and where the provinces stand,'' said Sola. ``Buenos Aires province won't attend (meetings) until there is some unity within the government itself.''
Broken Alliance
The ruling Alliance, weakened by high level resignations including its vice president last year, has failed to get support from the junior Frepaso members of the coalition for measures that include reductions to state salaries, pensions and payments to suppliers of between 8 percent and 13 percent. The reduction would save about $200 million a month and trim spending by $1.4 billion this year and $4.25 billion in 2002, the government says.
The opposition also wants clearer signs that de la Rua's own Radical Party supports the cuts. Party president Raul Alfonsin, who said earlier this week he supports the cuts, now wants changes, La Nacion reported. Alfonsin, a former President of Argentina, also met Friday with a leader of a radical union group that opposes the cuts, raising concern about Alfonsin's support for de la Rua's measures.
The Peronists object to reductions in payments to pensioners and want assurances the government will fulfill its federal tax sharing obligations with Argentina's 23 provinces. Subsidies to the provinces account for about half of the federal government's $50 billion budget, before interest payments.
``The national government did not abide by its pledges to reactivate the economy,'' the governors said in a letter to the president. ``Neither does it allow us to abide by our commitments to our people because it fails to pay the funds it owes us.''
Concern
Investors are concerned that Economy Minister Domingo Cavallo, who has relied on opposition backing to introduce economic measures in the last three months, may face new resistance from opposition governors. Earlier this month they threatened to break off support if the federal government didn't pay back salaries and financial transfers.
The lack of economic recovery and waning support from within the ruling party has raised the prospect that de la Rua's coalition will be soundly defeated in October congressional elections, increasing the power of the opposition and stalling government efforts to cut spending and spark growth. The Peronists hold a majority in the Senate.
``The Peronists didn't agree, but they didn't disagree either,'' said independent economist Juan Alemann. ``They will come up with new proposals, there will be debate and then they will agree. There is no money in the treasury, so they have no choice but to agree.''
The World Bank today said it will disperse in August $400 million of a previously announced $900 million loan and lend another $700 million to three Argentine provinces. The bank backed Argentina's spending cuts plan.
``The most important thing is that Argentines are united in their support for the implementation of these measures,'' said Vice President David de Ferranti during a press conference.
The country's floating rate bond due in 2005 rose 0.3, or 0.5 percent, to 63.42 yesterday, as the yield slipped to 35.75 percent. The yield hit a record high of 42 percent Thursday on concerns of a default.
``The markets are very nervous at the moment, but Cavallo's plan will work, I'm sure of it,'' said Alemann, a former Argentine Economy Minister.
Cavallo announced the planned cuts Tuesday after the country paid record rates to domestic banks to refinance debt coming due, prompting investors to dump Argentine bonds.
The government will receive about $4 billion from lenders such as the International Monetary Fund by yearend, and is in talks with banks and pensions funds to buy new securities so the government can pay off about $4.8 billion in Treasury bills due this year.
PS: More mushrooms to come. marek. It is not 1998 |
