Argentina Unveils Economic Reform Program

Argentine President Raul Alfonsin, in a nationally televised speech Friday, announced a sweeping monetary and economic reform package to turn back runaway inflation and end automatic wage and price hikes.

“The reform plan is not to save a government,” Alfonsin declared, “it is to save a political system, a life style and to recover national ambition and pride.”

Providing broad outlines of his reform plan, Alfonsin said his government will take the following measures:

- Give first priority to stopping inflation.

- Freeze wages and prices.

- Establish a monetary reform that will end the indexation of prices and wages, an automatic upward adjustment process that has fed inflation.

- Lift government controls to establish a free-market economy.

- Abolish the Argentine peso and replace it with a new monetary unit.

In his speech, Alfonsin declared an end to “gradualism,” a failed government effort to control inflation slowly that has made no headway in the past 14 months.

“What sense does it make to reduce inflation to 30% or 29% or 28% a month, if all of these figures are equally intolerable?” he asked rhetorically.

The president said there will be “punishments for speculation” and for those who “think that money can only be used to make more money.”

In New York, meanwhile, a consortium of 12 nations agreed to grant Argentina a $480-million bridge loan to tide over the nation’s foreign debt payments until it can receive disbursements from an International Monetary Fund standby credit. A U.S. government source said the United States will contribute $150 million to the loan. The source, who asked not to be identified by name, said other nations participating in the deal include Mexico, Brazil, Japan, France and Canada.

Thursday night, central bank President Alfredo Concepcion had ordered a “bank holiday” Friday. The measure effectively halted all transactions, apparently to head off massive withdrawals of deposits in view of economic uncertainty.

The move followed a day of jitters in the Buenos Aires financial markets. In the black market, the dollar had rocketed from 855 pesos to the dollar to a peak of 1,100.

The central bank also received a setback when a federal court of appeals ruled unconstitutional a bank directive freezing Argentina’s dollar deposits in the country for 120 days on May 17.

Dollar deposits were frozen in Argentina following the collapse of Banco de Italia y Rio de La Plata, the nation’s third-largest private bank that went bankrupt May 10. The central bank at first classified the bank “in liquidation” but Thursday changed the classification to “intervention,” meaning that the bank will be reopened under a government overseer.

Government sources said the bank will be refinanced by a $20-million bail-out loan from private banks, a surrender of $45 million in deposits by unsecured depositors who will lose 50% of their investments and wage cuts for bank employees.

On Tuesday, the central bank devalued the peso by 18%, a break with the past pattern of “mini” devaluations of 1% a day, to boost exports and comply with recommendations of the IMF to control inflation.