Wednesday August 29 9:19 PM ET

Opposition Mounts Against Argentina Cuts

By Brian Winter

BUENOS AIRES, Argentina (Reuters) - Opposition to the Argentine government's last-ditch plan to avoid a debt default swelled on Wednesday as key politicians and hundreds of union protesters lashed out at unpopular austerity measures.

Influential provincial governors vocally opposed President Fernando de la Rua's plan to help defuse a harrowing financial crisis by slashing the $1.364 billion the provinces receive each month in federal tax revenues.

Governors from the opposition Peronist Party -- who control most of Argentina's 23 provinces and wield enormous political clout over legislators -- vowed to fight any effort by Congress to pass a law needed to modify the tax transfers.

De la Rua says the cuts are needed to ease investors' fears that a deep three-year economic funk could leave the government without cash to pay its $128 billion public debt.

``There's no way we are going to accept any (funding) cuts because the provinces and their inhabitants are making a huge effort to hit zero deficit,'' said Gov. Juan Carlos Romero of Salta province in northern Argentina as the Peronist governors met to discuss contingency plans late on Wednesday.

``We will have a bigger deficit if the cuts are made.''

The unpopular De la Rua's chances of pushing through the reforms appeared to darken further when a key ally from his own ruling center-left Alliance coalition said he too would oppose reduced funding to the provinces, many of which are besieged by cash shortages of their own.

``If (the cuts) occur, I will defend my province tooth and nail,'' said Gov. Angel Rozas of the impoverished northern province of Chaco.

Meanwhile two of Argentina's three largest labor unions led a march in Buenos Aires waving banners reading ``No to spending cuts; No to misery'' to protest the government's decision to cut some public salaries and pensions by 13 percent.

Members of two separate wings of the General Workers' Confederation (CGT) set off fireworks and played drums outside the presidential palace as their leaders warned the government they were sick of wave after wave of spending cuts.

The government says the cuts are necessary to balance its budget, but the unions say they are tired of austerity with a third of the nation's 36 million people living in poverty and unemployment near five-year highs at 16.4 percent.

Some analysts fear that popular opposition ahead of October legislative elections could force Argentina to backtrack on its ''zero deficit'' plan to convince investors it can avoid a default or currency devaluation by vowing to spend only what it earns in tax revenues.

Economy Minister Domingo Cavallo, who met IMF (news - web sites) Managing Director Horst Koehler and U.S. Treasury Undersecretary for International Affairs John Taylor in Washington on Wednesday, said he was confident the provinces would rally behind his austerity measures.

PRESIDENT INSISTS CUTS NECESSARY

De la Rua said he empathized with the protesters but insisted the spending cuts were necessary to stabilize the economy and bring down sky-high interest rates, and appealed to Argentines to rally behind his government's reforms.

``I want the Argentine people to know that the president and the government understand their worries, their pain, the way people feel about this recession that has gone on for so long,'' De la Rua told reporters.

Argentina's recession has deepened in recent months amid a roller-coaster financial crisis that led many investors to dump sovereign bonds and stocks fearing a total economic meltdown.

A think tank run by leading Argentine economist Miguel Angel Broda said on Wednesday it saw the economy shrinking 1.8 percent in 2001, singling out the credit crunch as a main factor.

But financial markets have stabilized in the last week after the International Monetary Fund promised to provide Argentina with $8 billion in fresh funding, most of which is earmarked to shore up the financial system against a recent wave of bank deposit withdrawals.

U.S. Treasury and IMF officials were scheduled to meet separately with holders of Argentine bonds in Washington on Wednesday, according to market sources, to further discuss ways Argentina could tackle its hefty debt load.

The Inter-American Development Bank meanwhile approved a pre-agreed $500 million loan for Argentina on Wednesday.

The positive market trend continued on Wednesday, with Argentina's benchmark Global 2008 dollar bond (ARGGLB08-RR) rising 2.85 percent to 67.625 points and the key MerVal (^MERV - news) stock index ending up 1 percent in slim trade as investors eyed the protests and hungered for more details on a planned voluntary debt swap.

Argentina's country risk rating, or the premium it must pay on its debt to lure investors away from safe-haven U.S. Treasuries, narrowed 35 basis points to 1,388 basis points. That means investors see its bonds as a riskier investment than fellow emerging markets Brazil, Russia and Turkey.

http://dailynews.yahoo.com/h/nm/20010829/bs/economy_argentina_dc_1.html

-- Martin Thompson (mthom1927@aol.com), August 29, 2001