Sunday, March 18 12:29 AM SGT

Argentina copes with fallout from austerity program BUENOS AIRES, March 17 (AFP) - The Argentine government on Saturday coped with political fallout from a nearly eight-billion-dollar, three-year austerity program designed to inject new life into the country's flagging economy.

The plan that calls for massive budget cuts in education and other social programs has already resulted in the resignation of three cabinet ministers and, according to the newspaper Clarin, has produced "a complex political situation."

Eight months ahead of parliamentary elections scheduled for October, President Fernando de la Rua "has to look for new allies," the newspaper pointed out.

Interior Minister Federico Storani, Education Minister Hugo Juri and Social Development Minister Marcos Makon resigned after Economic Minister Ricardo Lopez Murphy announced the program late Friday.

Ricardo Mitre, general secretary of the presidency, and Deputy Interior Minister Nilda Garre followed suit, while the cabinet's deputy chief of staff, Graciela Fernandez Meijide, said she would quit on Monday.

The departures of Storani and Meijide are seen as particularly painful for de la Rua because they were key architects behind the ruling coalition that includes the center-left Radical Civic Union and the front FREPASO, made up of dissident Peronists and Socialists.

Under the austerity program, government spending will be cut by more than 1.9 billion dollars this year, by almost 2.5 billion dollars in 2002 and by 3.5 billion dollars in 2003.

The decision spells painful cutbacks for the government workforce and federal assistance to provinces, as well as education and health programs.

Argentina's annual budget deficits are not to exceed 6.5 billion dollars, or 2.4 percent of gross domestic product. That would qualify the country for ongoing international assistance from the International Monetary Fund (IMF) and other donors, amounting to about 40 billion dollars.

There was no immediate reaction from the IMF to the program.

Authorities have also decided to continue to peg the peso to the US dollar in order to maintain financial stability. The peso currently maintains parity with the US dollar.

"Abandoning convertibility would have been a mistake of unthinkable proportions," Lopez Murphy said as he presented the measures.

The government did not hide the fact that the austerity program would be painful for many citizens.

In an emotional address to the nation, President Fernando de la Rua called the proposed measures "exceptional" but argued that they were needed to "restore economic growth" and "reduce the budget deficit."

On Saturday, Lopez Murphy expressed confidence that the business community would "react positively" to the austerity package, "because they will see that these measures will help them."

International Development Bank President Enrique Iglesias, speaking in Santiago, Chile, on Saturday, was optimistic that Argentina would bounce back from its current state of economic and political turmoil.

"I am confident in the Argentine economy," Iglesias said, adding: "I have much confidence in the capacity for the Argentine leadership to overcome its difficulties."

The measures follow a 33-month recession that deepened last month. Argentine industrial output plunged 2.9 percent in February compared with the same month of 2000, according to figures released Friday by the Economic Ministry.

Businesses are laying off workers, the unemployment rate has reached 15 percent, and Buenos Aires narrowly avoided default on its 125 billion-dollar debt in December after a 40 billion-dollar rescue package from international lenders.

The country must come up with 11.5 billion dollars in debt service payments this year.

The Argentine economy is facing additional challenges -- such as an open-ended strike at its main airlines, Aerolineas Argentinas and Austral, and outbreaks of foot-and-mouth disease, which have prompted suspension of beef exports to some of the industry's key markets, including the European Union.

http://asia.dailynews.yahoo.com/headlines/world/afp/article.html?s=asia/headlines/010318/world/afp/Argentina_copes_with_fallout_from_austerity_program.html

-- Carl Jenkins (somewherepress@aol.com), March 17, 2001