Argentina Boosts Prices 30% for Many Public Services

The Argentine government on Tuesday raised prices for utilities, transport and other public services by 30%, the first step in a new initiative to rein in inflation that has spiraled to 320% a year.

Consumers waited anxiously for details of further measures, including a government austerity program and guidelines to limit wage and price increases. While the Cabinet apparently haggled over details, many businesses rushed to raise prices before the start of the restraint program.

Little Chance of Winning

President Raul Alfonsin’s party, the Radical Civic Union, says it intends to cut inflation, which soared to an estimated 25% for July alone, to below 10% a month by the end of the year. Opinion polls give the Radicals little chance of winning next year’s presidential election unless inflation falls sharply.

A key goal is to trim the government budget deficit, a primary source of inflation, from about 10% of the gross domestic product to the budget target of 3.9%. To do that, the government needs to charge higher rates for public services, cut subsidies to, or sell off, inefficient government-owned industries and severely reduce spending.

Public Works Minister Rodolfo Terragno, in announcing the 30% rate increases, pledged that no further raises would be imposed for 60 days, in line with the anti-inflation drive. Argentines have become used to constant increases in train fares, natural gas rates and other services, fueling the inflationary spiral.

Banks Remain Closed

Banks and exchange houses, ordered to close Monday and Tuesday, were told they must remain shut today as well while the government completes the program, apparently slowed by disagreement over details.

Cash-strapped businesses delayed paying workers, taxi drivers turned down fares and restaurants apologized for shortages of change because of the bank closure. Shopkeepers said wholesalers had imposed broad increases of 25% to 30% on many products, including cigarettes.

Most analysts anticipated that the government would devalue the currency, the austral, by 10% to 15% against the dollar when banking resumed, to encourage exports and make imports more costly.

Argentina, the world’s third-largest foreign debtor, owes about $58 billion, and repayment devours about half the nation’s export earnings. International lenders reportedly agreed to a new $1.2-billion “standby” loan last week in Washington on the strength of the anti-inflation program, Argentina’s second such attempt in three years.

The effort coincided with the arrival Tuesday of U.S. Secretary of State George P. Shultz, who met privately with Alfonsin and with Carlos Menem, the Peronist party’s presidential candidate.

Serious Reforms Needed

Aboard Shultz’s plane en route from Guatemala, a senior State Department official said the United States was worried about Argentina’s economic crisis and that Alfonsin “needs to make significant progress in the short term and to impose serious reforms in the long term.”

The official noted that one American bank, Wells Fargo, already has begun writing off Argentine loans as bad debts, and other financial institutions are considering similar action. He said Argentina’s uncompetitive industries remain a key economic problem.

There is wide agreement that the Radicals’ candidate to succeed Alfonsin, Eduardo Angeloz, will lose to the flamboyant Menem if inflation remains in double digits per month. Voting is expected by mid-1989.