MARCH 20, 07:35 EST

Argentine Economy Minister Quits

By KEVIN GRAY Associated Press Writer

BUENOS AIRES, Argentina (AP) — Argentina's economy minister resigned just two weeks after assuming the post and attempting to implement a controversial plan to re-ignite South America's second-largest economy.

Ricardo Lopez Murphy offered his resignation three days after announcing a plan calling for $4.5 billion in spending cuts to help extract Argentina from a grinding 33-month recession.

President Fernando De la Rua announced Lopez Murphy's resignation Monday night. De la Rua said Domingo Cavallo, an internationally renowned economist, would either become economy minister or cabinet chief, the second most powerful position in government.

Cavallo ``will be in charge of directing the country's economy,'' De la Rua said after more than four hours of meetings with top officials.

The austerity plan announced by Lopez Murphy on Friday caused the Frepaso party, the junior partner in De la Rua's two-party Alliance coalition, to withdraw all of its officials from the government in protest.

Cavallo's entry may allow Frepaso to return to the coalition and help avert a serious political crisis. The party was likely to back Cavallo's approach to reviving the economy by focusing on lower taxes. Lopez Murphy had sought deep spending cuts. Three ministers had resigned on Friday over the new recovery plan.

In his first comments, Cavallo described Argentina's economic condition as ``grave.''

``We have to take the bull by the horns,'' said the Harvard-trained economist who was the architect of Argentina's plan to peg the peso one-to-one with the dollar.

Cavallo, who is the leader of the center-right Action for the Republic Party, had advised Russia and Ecuador on economic policy.

Argentina's economic woes worsened in October amid investor concerns that the economy would have trouble making its debt payments. Financial markets calmed after the International Monetary Fund engineered a $40 billion dollar emergency aid package in December. It requires Argentina to reduce its budget deficit for this year to $6.5 billion.

De la Rua was meanwhile working on Monday to build a national unity government incorporating several parties from across Argentina's political spectrum. All the parties pledged their support, but only if Lopez Murphy's proposed cutbacks were scaled back. Lopez Murphy said he could not remain as the country's top economic official if that happened.

De la Rua is seeking support amid the most serious political crisis of his 15-month presidency.

In a sign of mounting opposition to the austerity plan, trade unions and students had threatened national strikes this week. Hundreds of jobless workers threw up roadblocks around Buenos Aires and angry university students staged sit-ins and blocked traffic on major boulevards.

Authorities on Monday reported a small bomb explosion at the offices of an economic think tank. No injuries were reported, police said, but leaflets found at the scene denounced the proposed economic reforms. http://wire.ap.org/?SLUG=ARGENTINA%2dPOLITICS

-- Carl Jenkins (somewherepress@aol.com), March 20, 2001

Answers

Argentina Tries to Avert A Wider Crisis Leader Hopes to Ease Concern By Replacing Economy Chief

By Anthony Faiola Washington Post Foreign Service Wednesday, March 21, 2001; Page A23

BUENOS AIRES, March 20 -- With the sickly Argentine economy replacing Turkey on Wall Street watch lists, the government scrambled today to quell a brewing economic and political crisis by swearing in a noted free-market champion as its new economy minister.

This morning's appointment of Domingo Cavallo, a darling of Wall Street and the early architect of Argentina's market reforms in the 1990s, marked the third economy minister in two weeks for President Fernando de la Rua. The choice represented a desperate attempt to ease international concerns that a more severe crisis is developing that could trigger a new bout of financial turmoil across Latin America.

Leading economists expressed worry that a deepening 2 1/2-year recession here may hamper the ability of South America's second- largest economy to pay back its $150 billion debt at a time when slowing growth in the United States is already tugging down the region. Argentina, a country of 36 million people that is almost the size of India, is expected to miss first-quarter fiscal deficit targets set by the International Monetary Fund as part of a $40 million aid package last year.

Economists say they believe Argentina has enough cash and credit to cover $20 billion in short-term debt that it must repay in coming months. But the government's inability to get the economy moving or reduce its deficit has sent up warning flags about its ability to meet medium- and long-term commitments. Argentina represents about 20 percent of developing world debt on world markets; its issues are widely held by institutional investors across the United States.

Cavallo, 54, whose programs were viewed as having saved the nation from hyperinflation in 1991 and the effects of the Mexican peso crisis in 1995, has asked de la Rua for extraordinary powers for swift reforms. With his experience and his reputation, he is viewed by some as the wall standing between Argentina and economic meltdown.

"Getting this nation out of the recession . . . while meeting our international obligations is our number one mission," Cavallo said today. "And we will do it. We will get this country running again."

Fears about the Argentine economy have sent stock markets across Latin America falling over the past several weeks and hurt the value of neighboring currencies such as Brazil's real. Although markets seemed moderately reassured today by Cavallo's entrance, the country risk rating of Argentina -- long Latin America's wealthiest nation -- remained almost 2 1/2 times higher than Mexico's.

"The government simply appears incapable of finding the political will to slash its budget deficit and restore growth," said Jorge Mariscal, an economist with Goldman Sachs in New York.

The setbacks in Argentina underscored the underlying problems that have prevented Latin America's 1990s free-market reforms from generating growth and reducing poverty. Government overspending, corruption, ineptitude and a lack of competitiveness in the global marketplace have mixed into a noxious stew poisoning the Argentine economy.

In recent weeks, the nation also has been beset by political infighting that has paralyzed de la Rua's center-left Alliance coalition. Meanwhile, confidence in the nation has been rocked by an explosive money-laundering scandal and a new outbreak of bovine foot- and-mouth disease that has dealt a serious blow to vital beef exports.

De la Rua is getting much of the blame. The methodical, aristocratic de la Rua has been attacked by the left wing of his crumbling coalition for failing to deliver on promises to improve social welfare programs and generate jobs. His decision to bring in Cavallo, a staunch member of the Argentine right wing, was viewed here as evidence that the president feels he must now seek support among conservatives who favor deepening Argentina's increasingly unpopular market reforms.

An attempt by outgoing economy minister Ricardo Lopez Murphy to impose a massive $4 billion fiscal adjustment was announced Friday night. But it generated such a political revolt in the governing coalition that he was forced to resign Monday night.

Labor unions have called for a national strike Wednesday to protest economic reforms and austerity measures.

© 2001 The Washington Post Company

http://washingtonpost.com/ac2/wp-dyn/A31743-2001Mar20?language=printer

-- Martin Thompson (mthom1927@aol.com), March 21, 2001.