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Confidence in Argentine Economy Sinks to Record Lows - 2001-11-15

Confidence in Argentina's economy continues to fall, despite a breakthrough agreement reached late Wednesday on the government's deficit reduction plan.

The widely watched J.P. Morgan EMBI risk index, which reflects the lack of investor confidence in a country's credit-worthiness, increased by 40 basis points for Argentina, hitting a new record.

Confidence fell even though an agreement was reached late Wednesday for the governors of Argentina's three-largest opposition-run provinces to accept a government deficit-reduction plan. The provinces have agreed to cuts in their share of federal-tax revenues, which will help the government balance its budget.

The government of President Fernando de la Rua is also trying to restructure most of Argentina's $132 billion public debt by offering lower interest payments to bond holders. A key part of the plan is to reduce government spending in order to qualify for another multi-billion dollar bailout from the International Monetary Fund.

Argentine Economy Minister Domingo Cavallo is to attend a meeting of IMF member Finance Ministers this weekend in Ottawa, Canada. He is expected to discuss his government's economic program with U.S. Treasury Secretary Paul O'Neill.

Reports from Buenos Aires say Mr. Cavallo hopes to obtain U.S. support in persuading the IMF to free up a $1.2 billion early payment to Argentina. The reports say Mr. Cavallo will point to Wednesday's agreement with the opposition party governors as a factor in Argentina's favor.

Argentina is struggling to emerge from recession that has lasted more than three years. Unemployment at 16 percent continues to rise, with no economic recovery in sight.