Argentinian workers protest Government austerity cuts as debt crisis looms

Argentina ground to a halt today (Thursday), as unions called a general strike in protest at the Government's announcement of austerity cuts. The announcement to cut back budgets, in particular a 5 year freeze on all government spending, was made in discussion with the IMF in response to growing fears that Argentina would be unable to meet its $20bn debt service bill for next year.

Announcing the 24 hour strike, Rodolfo Daer, head of the largest trade union, CGT, said: "This government has given in to the international financial bodies." Ministers from De la Rua's centre-left government appealed to strikers to end strikes as they would make an already bad situation worse.

Argentina has generally followed prescriptions of the IMF in maintaining a permanently fixed exchange rate against the US dollar, increasing exports, sustaining low inflation and keeping the budget deficit below 1.9% of national income. Yet Argentina has also built up a dangerously high level of short-term debt and it had become increasingly obvious that Argentina would face serious problems in repaying its debts early next year. This caused panic on the financial markets and amongst Argentina's foreign investors.

Consequently the De la Rua government spent much of last week pushing for provincial governors to agree to a budget freeze. Fourteen opposition provincial governors initially opposed the freeze, demanding an increase in social spending in exchange for their support for the IMF's other policies. Most eventually however agreed to accept a five year spending freeze, in return for a $250m program for job creation, though even this was resisted by investors. Only one provincial governor (Santa Cruz) refused to sign the deal saying "this agreement will be suffered by the people and not by governors". In exchange for the agreed freeze by the Government, the IMF agreed to come to their 'rescue' with a $15bn refinancing loan, a short-term solution giving new loans for old ones and ignoring the pressing need for deep debt cancellation.

The IMF intervention pleased investors (who demanded 16% interest on a $1.1bn Treasury bill issue last week) and Argentine bonds rallied in response. As usual the "rescue" package, which will probably consist of $11bn from the IMF and $4bn from the World Bank and IADB, comes with many strings attached. These austerity measures include increased taxation, privatisation of state pensions and a 5 year freeze on all federal and provincial spending - meaning that real social spending will substantially fall in line with inflation.

Argentina is currently suffering recession, the highest ever unemployment level (15.4%) and almost 50% underemployment. A third of the population doesn't even have access to safe water. Yet the government has to spend almost as much on debt service as on health and education combined. In 1998 debt service ate up 58% of Argentina's export earnings, one of the highest levels in the world.

See also: Jubilee 2000: News: Landmark court ruling condemns Argentina's illegitimate debt.