Accessibility links

Argentine Senate Approves Zero Deficit Law - 2001-07-30

In the early hours of Monday, Argentina's senate passed the country's so-called zero deficit law - effectively slashing federal government spending by 13 percent. Under pressure from President Fernando de la Rua to pass the law before financial markets opened Monday, the senate convened midday Sunday, in a special session. The senate's stamp of approval should hold off legal challenges to the government's spending cuts. Still, bitterness over the deep cuts does not look likely to disappear soon.

After a marathon session that lasted into the predawn hours of Monday, Argentina's upper house approved the measure designed to cut federal outlays by $1.5 billion over the second half of the year.

The bill cuts 13 percent from all federal government pensions and federal workers salaries that exceed $500 a month. Although some senators hoped to raise the exemption level from $500 to $1000 per month, the senate passed the bill virtually unchanged from the version the country's lower house passed, last weekend.

For the past week, Mr. De la Rua's administration has kept the pressure on the senate to pass the controversial measure and restore calm to both local and foreign financial markets. The spending cuts were initially issued as a presidential decree and were very susceptible to legal challenges in court.

In fact, on Friday, an Argentine labor judge ruled the cuts in federal salaries were unconstitutional, sending a tremor through the market.

Mr. De la Rua cut short his weekend visit to nearby Peru for swearing-in of the Andean nation's new president, Alejandro Toledo, to return to Buenos Aires for last-minute negotiations between the executive and legislative branches.

Although the opposition Peronist Party controls the senate, dissent and infighting within Mr. De la Rua's own coalition party, the Alliance, was the real root of the president's headache. The Peronists, wary of appearing under control of the government's, ahead of October midterm elections - had refused to debate the bill until the president's own party closed ranks and agreed on a position.

The center-left Alliance Party has never fully recovered from the October, 2000 resignation of Vice President Carlos Alvarez, who led the junior partner in the coalition, the Frepaso. The left-of-center Frepaso, as well as many members of the president's own party, the UCR, have been harshly critical of the government attempts to trim federal spending in the midst of a third straight year of recession that has driven unemployment rates above 16 percent. Instead, with nearly one-third of the country's 36 million inhabitants living below the poverty line, they favor more government spending for social benefits and employment plans.

However, Mr. De la Rua, Economy Minister Domingo Cavallo and other government ministers are convinced Argentina has been living beyond its means for too long. They blame Argentina's persistent federal and provincial budget deficits for using up available credit lines and driving up local interest rates, to the detriment of the private sector. International markets have also grown tired of the excessive government spending and Argentina has been forced to pay double-digit interest rates on fresh credit lines.

By slashing government spending, Mr. De la Rua and Mr. Cavallo hope to restore market confidence in Argentina and to attract new foreign investment, spurring growth and employment. After much closed-door negotiating, the federal government was able to strong-arm both the Alliance and Peronist senators into passing the bill, in the hours before Wall Street was to open.

Not all Alliance senators voted in favor of the spending cuts. Leopoldo Moreau - one of the UCR's senators and a vocal opponent of the government's plan - voted against the measures, saying the old economic model no longer worked and Argentina needed to look for a new one that did not place the burden on the country's pensioners and civil servants.

Many Argentines are beginning to feel the same - disillusioned by 10 years of free market reforms that many feel have failed to deliver.

Demonstrations and protest marches against the current administration have become a daily event. Tuesday, groups of unemployed Argentines plan a nationwide series of roadblocks to protest the seventh spending cut since Mr. De la Rua was sworn in, 19 months ago. The government has promised to keep the nation's highways open by applying laws, court orders and even police force against the protesters - raising the stakes for Tuesday's protest.