Tough Moves to Heal Argentine Economy Taken

The new Peronist government, performing “major surgery without anesthesia” on its ravaged economy, raised energy prices Sunday by up to 640% and cut the value of its currency by more than half to rein in Argentina’s brutal inflation.

President Carlos Saul Menem’s economic team also announced a price freeze and reductions in the prices of necessities such as bread to ease the impact of the austerity program on the poor.

Economy Minister Miguel Roig announced the emergency measures one day after Menem took office amid a catastrophic economic crisis that drove former President Raul Alfonsin to resign five months early.

More Fundamental Ills

Along with the short-term emergency program, Roig disclosed plans to combat more fundamental ills that stem from the state’s exaggerated role in the economy. He said, for example, that all subsidies and privileges for private business would be eliminated, and money-losing government-owned firms would be sold to the private sector.

Together, the measures form a drastic attack on the government’s budget deficit, which mushroomed in the final months of Alfonsin’s Radical Civic Union administration as inflation chewed up the value of taxes and drove up the cost of services. Consumer prices rose 114% in June alone.

Thousands of cars formed lines stretching several blocks at every open service station in the capital to buy a maximum of five gallons at the old price before the increase took effect. The price would shoot up from about 40 cents a gallon at the previous exchange rate to $1.66 a gallon at the new official rate.

Prices for natural gas, electricity and telephone service went up by similar amounts, although discounts were devised for the poor.

Roig, a retired executive from the Bunge and Born food conglomerate, also devalued the currency, the austral, by 53.7%, from 300 to 650 australs to the dollar. That is even higher than the black market rate of 540 australs on Friday before Menem took office. The devaluation was designed both to stabilize the austral, which has risen furiously from 17 to the dollar in February, and to encourage exports by giving companies a realistic, market-value income on their sales.

Roig said all workers would get a one-time payment of 8,000 australs, or about $12.30, in July to soften the blow of the huge tariff increases. The minimum wage has fallen in dollar terms to about $30 a month and buying power has been pummeled by the crisis, setting off a spate of supermarket lootings in late May that left 15 dead and more than 2,000 people detained. Hundreds of thousands of workers have been laid off temporarily as consumption has plunged.

Although Menem’s Peronist party is based on trade union support, his program sought to reach across party and class lines and win support from all sectors--and to share the burden of sacrifice.

In a news conference for foreign reporters, Menem said decades of political instability and resultant military coups since 1930 had generated economic chaos and stagnation. He said his program would need between 2 and 2 1/2 years to bear fruit but would set the stage for long-term recovery that would justify the hardships ahead.

Menem said the changes would be the result of cooperation among business, workers and government, achieving a “concertation” that escaped Alfonsin. Further, he said his government would not make Alfonsin’s mistake of focusing on the short-term program while neglecting the structural changes to address the underlying problems.

“We are going to perform major surgery, which has been long overdue, and without anesthesia,” he declared to the foreign journalists, repeating a theme he expressed earlier in the day at a ceremony marking Argentina’s 173rd anniversary of independence from Spain.

The degree to which the program succeeds will not only determine whether foreign investment returns, but also whether Argentines bring home the billions of dollars they have stashed overseas, Menem added. Economists estimate the amount of “flight capital” at up to $45 billion, or more than half of Argentina’s $60-billion debt, on which no interest has been paid in more than a year.

Menem also said he hopes to resume normal diplomatic relations with Britain, seven years after ties were severed during the war over the Falkland Islands. Argentina’s defeat in that war helped end the previous military dictatorship and set the stage for Alfonsin’s election in late 1983, but the dispute over the South Atlantic islands, known here as the Malvinas, remains a preoccupation for all political parties.

Menem said he was willing to set aside the issue of sovereignty over the islands, which Argentina has claimed since Britain seized them in the 1830s, during talks with Britain on normalizing relations. In recent years, Argentina has been unwilling to negotiate with Britain unless the issue of sovereignty was included.

The 59-year-old president also repeated his determination to end conflict between the armed forces and civilian politicians over human rights trials for offenses committed during the 1976-83 dictatorship. At least 9,000 Argentines disappeared and were presumed murdered during the military’s war against left-wing subversion. The trial of senior officers by Alfonsin’s government prompted three army insurrections.

Menem, who served five years in jail during the dictatorship, said he had the moral authority to end that conflict--presumably through some sort of amnesty--and allow the country to concentrate on the future.