Argentina Caps Prices, Pledges to Pay Off Debt

President Raul Alfonsin on Wednesday called inflation a ticking bomb in the middle of the Argentine society as he unveiled an economic austerity plan for the final two years of his term.

“Deactivate the inflation bomb, and let’s do it as soon as possible,’ Alfonsin urged in a 25-minute speech broadcast nationwide.

Under the plan, prices on almost all goods will be frozen for an indefinite period to try to reduce the surging inflation rate, which has averaged 136% during the past 12 months.

The government also ordered a 12% hike in the minimum wage, to 350 australs ($100) a month, and an 11.8% devaluation of the weak austral.

Public transportation prices were increased 15% overnight by the government.

The government said Argentina was adopting a growth model based on “genuine investment and the mobilization of the wealth of society” as opposed to what it described as the fiscal subsidies and monetary privileges of the past.

Pay More for Oil

The measures marked a step toward freer, more competitive local markets with more incentive for investment by private enterprise in such areas as oil production and telecommunications--previously exclusive state domains.

The government said it would bring the price the state oil company pays private companies for crude up to the level being paid on the international market. It said it had been paying only 55% of the international price.

Inflation, Alfonsin said, “is a bomb placed in the middle of the Argentine society.”

The 60-year-old president said the nation would “assume responsibility for its international obligations” by continuing to pay its $53-billion foreign debt, despite a $700-million rise in annual interest payments.

Argentina has the third-largest foreign debt of developing nations, behind Brazil and Mexico.

Alfonsin rejected opposition calls for a moratorium on foreign debt payments, saying it would show “moral strength” to continue payments despite adverse economic effects.

Real wages have fallen 20% below what they were when Alfonsin was elected president four years ago.

In nationwide elections Sept. 6 for governors and seats in the House of Deputies, the labor-based Peronist party swept 16 of the 22 governor’s seats and denied Alfonsin’s Radical Civic Union Party a majority in the House of Deputies.

Since then, the government had met off and on to devise an economic plan to calm restive workers. Opposition groups have said the new plan will hurt the working class.

The Central Bank ordered a two-day banking holiday Tuesday and Wednesday to dampen currency speculation in advance of the new plan. Last Friday, the austral was devalued 12.96% against the U.S. dollar.

The new rate of exchange at banks today will be 3.50 australs to the dollar, compared to Friday’s close of 3.1225.