Debt-Laden Argentina Imposes New Fiscal Strictures

Argentina imposed sweeping tax and financial reforms Saturday in a renewed attempt to come to terms with its international creditors.

The new measures, accompanied by stiff increases for basic services, were designed to increase revenue and discourage speculation. They followed police raids Friday on Buenos Aires exchange shops suspected of trading in black market dollars.

Announcement of further anti-inflationary policies, together with a presidential address explaining them, is expected within the next few days.

Amid accelerating inflation and a budget deficit that is sapping the nation’s economy, the civilian government of President Raul Alfonsin has failed to meet economic goals agreed to with the International Monetary Fund. These goals were a preliminary step toward renegotiation of Argentina’s foreign debt, which totals about $48 billion.

Financial sources here said that the IMF will withhold about $400 million due today as part of a $1.4-billion standby agreement reached in December. Neither will the foreign banks, mostly American, that are Argentina’s principal creditors disburse any of the $4.2 billion in new money they pledged as part of payment rescheduling.

As a result, Argentina will fall into arrears today on overdue interest payments of about $1 billion, the sources said.

The Argentine treasury said that under the government’s revenue-raising program, receipts should climb by about 25% by increases in income, profits and stamp taxes, the reimposition of an inheritance tax and the waiving of bank secrecy laws for tax inspectors. Backed by improved inspection and stiffer penalties for tax evasion, the measures are intended to ease a deficit that is nearing 10% of the gross national product. (By comparison, the projected U.S. deficit for the next fiscal year will be 6% under Reagan Administration budget proposals.)

Under the stabilization program directed by Economy Minister Juan V. Sourrouille, the government will also seek to restructure financial markets, where speculation has been rampant.

The steps ban the use of unregistered middlemen in trading, forbid the use of dollar-denominated government bearer bonds as collateral in loans between companies, and restrict central bank guarantees on bank deposits. As a tool to promote savings, interest rates were increased two percentage points a month, to 24% per month.

Argentina had promised the IMF that it would reduce inflation, cut the deficit and maintain exchange policies that would increase savings and encourage exports. It came close to meeting technical guidelines last December but veered away from compliance in the first quarter of 1985.

Inflation is particularly worrisome, both to the government and its creditors.

“It is not that the IMF and the banks are pressuring us to cut inflation but rather that we must cut inflation--with or without the IMF--as a matter of national political priority,” Ario Brodersohn, president of the National Development Bank and the Argentine negotiator with an IMF team currently in Buenos Aires, said Saturday.

The Argentines had promised to reduce compound inflation to an annual rate of 300% this year, but by the end of February it was running at slightly more than 800% a year--in effect, prices double every three months. The inflation rate for March is expected to be around 24%, on top of 21% for February on top of 25% for January

Alfonsin, a center-left politician who returned last week from a visit to the United States where he was widely hailed as one of the Western Hemisphere’s leading democrats, has resisted traditional IMF austerity policies. These tough steps--often described as a remedy for Argentina’s economic woes--might, in Alfonsin’s view, trigger social unrest.

The president has repeatedly promised workers that real income will rise despite inflation. He argues that democracy must be perceived as economically advantageous if it is to take root in a country with a long authoritarian tradition.

With the tax and financial steps come price increases effective today of 25% in gasoline, 23.5% for taxi fares and 35% for bus fares. There was no mention of the explosive issue of salaries. That will come within the next few days.

At present, salaries are adjusted monthly by an amount equal to 90% of that month’s inflation with the rest made up quarterly. There is widespread speculation, however, that, despite Alfonsin’s promises, the government will begin to decrease pay hikes as a means of braking inflation.

Sensing a major policy change in the wind, some analysts are already predicting a recession, and the nation’s largest labor federation has ordered its locals on alert for possible protest strikes.