<
--------------
STRATFOR.com
--------------
THE INTERNET SOURCE FOR GLOBAL INTELLIGENCE
If it’s in the news, it’s too late...
Argentina: Need To Shave Spending Puts Provinces, Capital at Odds
February 19, 2002
Summary
Argentina must begin to improve its public finances if it hopes to convince the International Monetary Fund to resume vital lending. The challenge for Argentine President Eduardo Duhalde is mustering the political clout needed to rein in spending at the provincial level. That effort will raise political tensions between the provinces and the capital, in turn making deep spending cuts unlikely.
A protestor beats a pot against the closed doors of a bank, amid police officers in the financial district of Buenos Aires, February 18, 2002. Depositors are demanding their savings back in their original currency after they were frozen in December by then economy minister Domingo Cavallo, to prevent investors from withdrawing their money in masse. The demonstrations have recently grown in number and the protests have been getting more violent.
Image Credit: Alejandro Kaminetzky -- Reuters.
Analysis
Argentina posted a $9 billion fiscal deficit after a tumultuous 2001, triple the government's target for 2002, the Economy Ministry reported Feb. 14. A day earlier, Argentina and the International Monetary Fund wrapped up two days of meetings in which IMF officials were generally supportive but non-committal about renewed lending -- either through the resumption of current commitments or making new loans.
Not surprisingly, the IMF has made clear that Buenos Aires must curtail government spending before it can receive a new funding commitment. Of the issues standing in the way -- including sharply lower tax receipts and public disdain for austerity measures, particularly when prescribed by the IMF -- the powerful and spendthrift provinces may represent President Eduardo Duhalde's greatest challenge. Recent cooperation between the federal government and the country's 24 provinces will give way to rising tensions as Duhalde pushes provincial governors to make greater sacrifices while constituents demand greater economic assistance.
Without immediate fiscal reform, Argentina will not convince the IMF to resume lending, which it badly needs to bolster the banking system. Domestically, the less effective Buenos Aires is at cutting spending, the more it will rely on raising taxes on the country's few profitable sectors, such as oil. This will only deepen the country's four-year recession.
During his talks with IMF officials in Washington, Economy Minister Jorge Remes Lenicov sought $22 billion to $23 billion in new lending commitments. He didn't get them. Any initial IMF commitment will be contingent on Argentina's adherence to a strict austerity plan and spending targets, which it has a poor record of meeting.
+++++++ NOTICE +++++++
This is an abbreviated version of a full-length STRATFOR report previously seen by our Members. To access STRATFOR's complete range of in-depth, objective intelligence and analysis on the globe, including our award-winning daily full text and graphics reports, click here and become a Member today!
->OR<-
Sign up here to receive our free daily briefing of important international events!
+++++++ NOTICE +++++++
(Story Source)
(c) 2002 Stratfor, Inc.
Related Stories:
* Demanding their money back, protesters damage banks in Argentina
The Associated Press
Tuesday, February 19, 2002
* Redrado: Argentina Wants IMF to Aid Peso Firepower
Reuters, Ltd
Tuesday, February 19, 2002
* In Argentina, Going Without
Paul Blustein -- The Washington Post
Monday, February 18, 2002
Dan
Argentina: Need To Shave Spending Puts Provinces, Capital at Odds . . .