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Argentina's Economy Makes Progress

In Argentina, there are signs of solid financial recovery three years after the country suffered devastating political and economic crises. A stable currency has meant increases in domestic consumption and foreign demand for Argentine goods. Argentina has taken an unusual road to this economic rebound. But, as Brian Byrnes reports from Buenos Aires, unemployment, poverty and billions of dollars in outstanding debt must be addressed before the turnaround can be complete.

In the industrial town of Don Torcuato, 20 miles north of Buenos Aires, scores of small factories line a two-lane road off the highway.

Inside the Occhipinti warehouse, two dozen workers grind, cut, saw and build wooden dressers, doors and shelves for bedroom closets and cabinets. As he walks among the scraps and sawdust, owner Daniel Occhipinti recalls how difficult the recent years have been for his business.

"In 2002, it all ended. Work just died," he says. "Nobody bought anything, some because they didn't have the money, and others didn't buy because they were scared. They didn't know what was going to happen to the country."

What has happened to the country since declaring the largest debt default in modern history in December 2001 is nothing short of extraordinary. Argentina's economy grew eight percent in 2004, and is expected to grow five percent this year.

Unemployment at 13 percent is down from a record 21 percent in 2002. Thanks to a weakened peso, domestic consumption is on the rise, commodities exports are bustling and tourists are flocking here from all over the world.

This recovery has come essentially because Argentina brazenly defied the advice of banks, bondholders and the International Monetary Fund. These groups prescribed more fiscal discipline and urged the Argentine government to settle its foreign debt obligations first. Argentina did just the opposite, taking a hard-line stance and choosing first to concentrate on domestic problems.

The result is a financial comeback that has puzzled analysts, pleased leftist-President Nestor Kirchner and provided growth for small businesses like Occhipinti, which has doubled its sales and workforce in the past three years.

Luis Cuellar has been working on the factory floor since 2003.

"The situation is really better these days, but with the instability here in Argentina, there is always the possibility that the same thing that happened in 2001 could happen again," Mr. Cuellar says.

In December 2001, Argentina's economy collapsed, and political chaos soon followed. The country defaulted on more than $100 billion in debt, the peso lost more than two-thirds of its value and social conditions were the worst in Argentina's history.

"Things were so bad in 2001, 2002 and even parts of 2003, that they can't go anywhere but up, and they have been doing that," he said.

Economist Federico Thomsen is enthusiastic about Argentina's recent economic progress, but warns that, without winning back the confidence of international lenders and investors, long-term growth cannot be sustained.

He says the most pressing issue for Argentina today is its more than $100 billion in foreign debt.

Earlier this month, the country made an offer of 30-cents-on-the-dollar to disgruntled bondholders around the world.

"The perception is that there is a growing number of people, of bondholders, who are realizing that Argentina cannot, and will not, pay more than this," Mr. Thomsen said.

The Global Committee of Argentina Bondholders represents about 500,000 creditors in Japan, Germany, Italy, the United States and other countries, who hold some $40 billion in Argentine bond debt.

Committee member Hans Humes says his clients have no plans to accept Argentina's 30-cents-on-the-dollar offer, and are convinced that the country can pay twice that amount.

"My personal opinion is that this group has crossed the threshold of acting in an economically rational way," he said.

There are signs of returned confidence, however. China recently announced it will invest $20 billion in Argentina over the next decade, and many Latin American countries are following suit.

Back on the floor at Occhipinti, Argentina's foreign debt negotiations are the furthest thing from Ariel Acosta's mind. He got this carpentry job only a year ago, and is grateful just to be earning a paycheck.

"I was just saying to my wife that I was really lucky to find this job, where I earn good money and am treated well," Mr. Acosta says.

Argentina is clearly working to turn around its financial misfortunes, and life has improved for many average Argentines, but joblessness and poverty are still a problem. Ariel Acosta earns enough to make ends meet, but says that many of his family and friends have still had no luck finding work.