Economic Crisis Seen as Threat to Argentine Government : South America: Currency is devalued in an effort to stem the tide. The White House reacts cautiously.

Argentina has plunged into an economic crisis that analysts here fear could ultimately threaten the stability of the government of its new Peronist president, Carlos Saul Menem.

The sudden decline of the Argentine economy over the past several days has reportedly led to incidents of civil unrest. Railroad workers began a nationwide strike Wednesday. There were reports of bus-burnings and other violence in Buenos Aires and other cities.

The economic situation appears to be worsening almost by the hour. Capital flight has intensified sharply. Wages are running out of control. Inflation is wreaking havoc. Food prices soared between 25% and 200% after an easing of price controls last weekend.

On Monday, in a last-ditch effort to stem the tide, the government devalued the Argentine currency by 35%, from an official exchange rate of 650 australs to the dollar to 1,000, and by Wednesday it was trading informally at 1,350.

The increasing instability has alarmed some U.S. policy-makers and private analysts, who fear the turmoil is becoming so deeply rooted that it is threatening the Menem government.

A senior Treasury official is due in Buenos Aires this week, ostensibly as part of a trip that includes visits to several Latin American countries. Some analysts expect Menem to seek a short-term loan from the United States to help head off any run on Argentina’s dwindling reserves.

So far, however, the Bush Administration appears to be reacting cautiously. The White House National Security Council and intelligence agencies are reported to be following the situation closely, but the White House has yet to authorize any action.

The chaotic situation is the culmination of a steady deterioration in the economy since early last summer, when Menem assumed power early from President Raul Alfonsin, who was the first democratically elected Argentine president in modern times.

A wage-and-price control program that held wages down more firmly than prices eventually cost Menem the support of organized labor, which split over whether to continue cooperating with the new government. When labor balked, capital flight mushroomed and the austral plunged.

The sudden collapse of the past several days followed Menem’s declaration last weekend of a moratorium on servicing domestic debt.

On Wednesday, government officials scrambled desperately to try to enlist the support of business, labor and the country’s disparate political parties in forging a new social compact. e But it was facing an uphill fight.

Argentina has not been totally without Western help. On Nov. 13, the Washington-based International Monetary Fund approved a $1.4-billion loan to Buenos Aires. Less than two weeks later, the country’s central bank president resigned, charging interference by Menem aides.

Menem’s initial program also was endorsed by the Bush Administration, which hailed it as a step in the right direction. However, Argentina still has not qualified for help under the Brady Plan, the new debt-reduction program outlined by Treasury Secretary Nicholas F. Brady.

An Argentine effort to reduce government borrowing by converting inefficient state-owned industries to private firms also has foundered. Argentina has not paid interest on its loans from U.S. and other foreign banks in 20 months, and is now about $5 billion in arrears.

Argentina repeatedly has promised the IMF that it will reduce government spending. Its latest agreement with IMF pledges to slash the nation’s budget deficit to 1.25% of the country’s total output next year, from 16% in 1988.

But as late as last August, the budget deficit as a percentage of national output had increased from its 1988 level, and analysts here say it appears to be headed even higher in the face of the current turmoil.

Alan J. Stoga, international economic analyst for Kissinger Associates, notes that December and January usually are quiet months politically because it is the vacation season. “The toppling of Alfonsin’s government actually began in February,” Stoga said.

But the situation is deteriorating so rapidly that many analysts believe Menem may not have the luxury of the traditional December-January hiatus and will have to act quickly or face a serious threat to his ability to govern.

“He’s got to break the circle and regain credibility,” Stoga said Wednesday. “It’s do-able, but very difficult.”