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Argentina Austerity Plan Sparks Protest - 2001-08-02

Thousands of unemployed Argentines blocked roads and highways throughout the South American nation again this week to protest President Fernando de la Rua's economic policies. Social unrest appears to be mounting as the de la Rua government struggles to pull the country out of a continuing economic crisis.

Protest leaders describe their demonstrations as a success, and vow they will stage more blockades next week if the government does not reverse its economic austerity policies.

Thousands of unemployed workers, public employees, and students blocked roads and highways throughout Argentina Tuesday in a coordinated protest that came less than a month after a nationwide strike paralyzed the nation.

The protest also was a reaction to the latest government austerity measures approved into law by the Argentine Senate Monday. Among other things, the austerity package cuts wages and pensions of public sector employees by 13 percent. Like previous measures, the aim of the package is to reduce spending to enable the government to continue making interest payments on its massive $128 billion public debt.

Ever since taking office in December 1999, President de la Rua has been struggling to maintain Argentina's fiscal solvency while trying to pull the country out of a three-year recession. However, with few signs of progress and unemployment now at 16 percent unrest has been rising.

Despite the protests, some Argentine political analysts believe the government has no choice but to stay the course. Political consultant Felipe Noguera says the growing unrest can be viewed as a sign that the government is carrying out needed changes. "Argentina has a tradition of demonstrations in the streets," Mr. Noguera says. "Usually, demonstrations in the streets happen when the government is making decisions when changes are being implemented. And usually, when the government moves ahead there are winners and losers and, therefore, those who feel they are losers go out and demonstrate. Social conflict is usually a signal or sign of progress. When nothing is happening and the government is trying to keep everything still and not moving, then we tend to have less demonstrations on the street, but things aren't happening."

Much of the credit, and blame, for these policies is centered on the government's economy minister, Domingo Cavallo. Named to the post in March following a period of policy disarray, Mr. Cavallo's appointment originally sparked hope for dramatic improvement given his past record. Mr. Cavallo, who heads an opposition party, served as economy minister under Mr. de la Rua's predecessor Carlos Menem, and was responsible in the early 1990's for ending Argentina's hyperinflation and stabilizing the economy.

The key to Mr. Cavallo's success was his decision to peg the Argentine currency, the peso, at a one-to-one rate to the U.S. dollar. With each peso backed by a U.S. dollar, hyperinflation was tamed and the Argentine economy began to grow.

But the strong peso is now hurting Argentina making its exports too expensive. The 1999 devaluation in neighboring Brazil, Argentina's major trading partner, worsened the country's recession. Yet Mr. Cavallo has repeatedly ruled out devaluing the peso because it could spawn renewed inflation and bankrupt the many Argentine companies that have to repay their debt in dollars. Since assuming his post, Mr. Cavallo has been implementing measures to reduce the fiscal deficit, roll-over Argentina's foreign debt payments, and revive the economy. But he has had mixed success and some international risk analysis firms have begun to question whether he can pull the country out of its economic tailspin. The firm J.P. Morgan this week raised its risk assessment of Argentina as reports surfaced of an outflow of the country's foreign reserves.

The mounting street protests are putting additional pressure on the government. Yet, political analyst Noguera believes most Argentines are still willing to give Mr. Cavallo the benefit of the doubt. "Over the last 18 years since we returned to our democratic process, I think Argentines have shown a fair degree of patience of giving governments time to develop, and I think that's what we're seeing now," Mr. Noguera says. "People are giving Cavallo the benefit of the doubt, they're giving him some time, they're endowing him with this hope, this power." Mr. Cavallo and President de la Rua also are renewing their appeals for more time in messages to the Argentine people and the international community. In a speech broadcast nationwide Wednesday, Mr. Cavallo urged Argentines and the world to give the government "a chance" to show what it can do.

For his part, President de la Rua received public expressions of support Wednesday from British Prime Minister Tony Blair and Brazilian President Fernando Henrique Cardoso. The two leaders called on the international community to support Mr. de la Rua's policies following a meeting with the Argentine president in a southern Brazilian city bordering Argentina. Mr. de la Rua described these statements as "extremely valuable" and went on to say that Argentina's problems are transitory and can be overcome.