Argentina Freezes Prices, Cuts Spending

The Argentine government Wednesday night announced a temporary price freeze, drastic cuts in public spending and a series of other steps to attack inflation of 320% per year.

Economy Minister Juan Sourrouille also said that the austral, Argentina’s currency, is being devalued by 11.42% to spur exports.

In imposing the “price treaty,” Sourrouille said prices must remain frozen until Aug. 15, then rise by no more than 1.5% through the end of August and up to 3% in September. During that time, the government will work out voluntary restraints for subsequent months in negotiations with industry and trade unions. Many firms, anticipating the measures, have increased prices.

President Raul Alfonsin, facing a national outcry over the surge in inflation in recent months, thus hopes to bring down the rise in the monthly cost of living from over 20% in July to single-digit figures by the end of the year.

At stake are not only the hopes of Alfonsin’s ruling party, the Radical Civic Union, in the mid-1989 presidential election, but also further foreign loans to help the nation pay interest on its foreign debt of $55 billion, the third-largest in the developing world.

Other measures include:

-- Drastic cuts in public works, including a halt to subsidies for state-owned companies apart from meeting their foreign debt payments, the suspension of a nuclear power plant project and a highway from Buenos Aires to La Plata.

-- A voluntary retirement program for up to 30,000 public workers and an agreement by private industry to employ them.

-- The elimination of import tariffs on some goods, including medicines, and removing export taxes on a number of farm products.

Minister of Public Works Rodolfo Terragno plans to announce further government austerity measures today that are designed to reduce a budget deficit now exceeding 10% of the gross domestic product. Inefficient government-owned industries are the cause of half the budget shortfall.

On Tuesday, utility rates and charges for other public services, including transport, were raised 30% to make their prices more closely reflect their real cost.

Terragno said the program initially was to be announced in mid-August, but news leaks forced the government to act sooner. Banks were ordered closed from Monday through Wednesday to prevent currency speculation.

Argentina’s second anti-inflation campaign in three years was generally well-received by a frazzled public, which has watched helplessly as savings and earnings evaporate. Businesses promised to take part in the voluntary price restraint program.

Trade unions, initially hostile, were pleased that wages were not frozen, and the government announced 25% to 30% pay raises for public workers to restore some of their lost buying power.

Farmers were angered by a revised exchange rate policy that will pay producers slightly more australs for industrial exports than for agricultural exports, always the backbone of Argentina’s economy.

The austral, worth more than $1 when it was introduced, has depreciated along with inflation, and is due to reopen today at one-twelfth that value.

U.S. Secretary of State George P. Shultz, on a three-day visit to Argentina, said most of his meetings with Alfonsin, business leaders and opposition politicians dealt with Argentina’s economic crisis.

Shultz told reporters Wednesday afternoon that “we’re being as supportive as we possibly can,” and he indicated there was an agreement on Argentina’s request for a short-term $500-million loan to allow the country to pay the interest on other long-term loans.

After praising Argentina for making a successful transition from a brutal military dictatorship to a working democracy in 1983, he said that it is important to remember that “economic reform is as needed as political reform. . . . It is important to privatize economic matters, to get taxes down and to get financial institutions into reasonable shape.”