Argentina's Embattled Economy BUENOS AIRES,
Argentina--According to economist Javier de Villanueva, "If there isn't
a way to grow out of the debt, then there's a problem." In Argentina, where
per capita income has been eroded to 1960- era levels, there is a problem.
In 1987 people showed their growing discontent with the government of President
Raul Alfonsin in the September elections. Alfonsin's party, the UCR (Radical
Civic Union), which started out with a broad base of support, suffered
a grave setback in the elections when Peronist candidates gained enough
congressional seats to end the UCR's control of Congress. Critics of the
government, pointing to monthly inflation rates above 10 percent, assert
that the government's Austral plan to control hyperinflation by controlling
prices and wages has failed. Each week there are strikes and rumors of
strikes as disgruntled employees in all segments of the economy express
their dissatisfaction with the state of the economy. Argentina, with its
well-developed economy, infrastructure and social service system, is not
a stereotypical impoverished, "Third World" debtor nation struggling to
provide essential services for its citizens. Indeed, a visitor to Argentina
could be forgiven for thinking that Buenos Aires was a West European city.
But no West European city has a black market for dollars where one can
receive 50 percent more for a dollar than the official exchange rate. The
economy's hunger for dollars, along with the strikes and the demonstrations
in the streets, reveal that Argentina, despite its relatively mature economy
and society, struggles with the debt problem as much as any other debtor
nation. What makes the economic problems of Argentina even worse is the
fear that the military will seize power once more if the democratically-elected
government cannot take the political and economic measures necessary to
ease Argentina's woes. Experts in academia, government and finance all
agree that there is a problem with Argentina's economy. They are, however,
baffled when it comes to proposing a solution. The essence of Argentina's
economic woes lies in the sluggish economy's inability to generate sufficient
activity and surpluses to produce growth and hard cash. "The country wants
to pay its debt," said Villanueva, who works at the Instituto Torcuato
DiTella. "It always has. But there is a growing preoccupation about our
ability to do so. Our democracy has to cut the deficit and reduce spending,
but that means cutting wages, and that's what produces strikes." Some critics
argue that Argentina's problem stems from excessive government involvement
in the economy (45 percent of the GNP comes from government-owned companies).
They point to the fact that the government bureaucracy has produced an
underground economy that is so large that the official economic statistics
account for only 60 percent of the country's actual GNP. These critics
argue that "privatization," the sale of government assets, is the only
way to get the country growing once again. "The central issue in this controversy,"
according to Villanueva, "is the restructuring of the state in a form that
will be acceptable to the unions." At this point, however, the unions appear
opposed to restructuring. Carlos Rodriguez, an economist at an economic
consulting group, CEMA, is one such critic. He blamed the government for
not taking stronger measures to increase the economy's surplus. "The government
uses the debt as a whipping boy. They blame all of the country's problems
on the debt, but the situation is not as bad as they say. The real burden
is the trade surplus: our $70 billion economy is generating a $1 billion
surplus. The economy, if privatized, could generate a $4 billion surplus,
but that is a political impossibility." The deterioration in the balance
of payments, plus the public debt and tensions created by the Austral plan
will, Rodriguez predicted, result in a rollover of Argentina's debt by
mid-1988. "By then, Argentina must get fixed interest rates and a cut in
the principal to get in line with reality." Jose Luis Nicolini, an economist
at the Finance Ministry, reflected criticism of the Austral plan and proposals
for privatization as simplistic. Such radical changes, he maintained, "would
not take Argentina anywhere. Calls for privatization are a signal that
something has to be done because as it is now, the problem has no solution.
But they are not the appropriate responses." Nicolini defended the government'
s handling of the economy and predicted that the government could continue
to work toward a negotiated solution with Argentina's creditors. The director
of a money center bank's branch in Argentina also expressed dismay about
the current political and economic situation in Argentina. "Alfonsin missed
an opportunity with the Austral Plan because he didn't reduce the state's
role in the economy." While he freely acknowledged that banks erred in
the 1970s by trying too eagerly to recycle petrodollars through liberal
loans to Latin American countries, he also maintained that there is more
than enough blame for the debt crisis to go around. "No one expects the
debt to be repaid in full," he said. "I do hope, though, that Argentina
can generate dollars to pay interest on its debt in a free market system.
There wouldn't be any discussion in Argentina about the debt if the country
could continue to pay interest, but even this is stopping." The banker
was especially critical of the government's involvement in the economy.
"It's time to give employees more of a share in the company." At this point,
the banker was at a loss for solutions, and he expressed a sentiment that
has overtaken many people in Argentina: "Everyone wants to keep the system
going, but a fatigue has set in. Nobody has been able (in the past five
years) to change things." Nobody can avoid concluding that Argentina cannot
pay. -J.C.