Argentina Taking Radical Steps to Combat Inflation

Hoping to cool hyper-inflation of more than 100% a month, the Argentine government Sunday announced an emergency package to slash the cost of the state bureaucracy by 25% and raise $600 million in new tax revenues.

In an address to the nation, Economy Minister Antonio Erman Gonzalez said the measures will reduce spending by $2 billion, in part by ordering all state employees within two years of retirement age to stay home.

Gonzalez acknowledged that the government of President Carlos Saul Menem has lost credibility through its failure to halt hyper-inflation, which he said had left the state on the verge of bankruptcy and collapse. He stressed that the plan does not veer from Menem’s commitment to free-market reforms but deepens the structural changes that already have cut public spending by 16% since Menem took office last July.

The package of more than 50 measures includes:

--The elimination of 56 offices within government ministries and the reduction of sub-ministries from 112 to 32.

--Increases in gasoline prices of 124% and similar boosts in charges for other state services.

--Daily indexation of tax charges to keep revenues from declining because of inflation, and reorganization of state-owned banks.

Menem, confronting a burst of hyper-inflation similar to the one that drove his predecessor Raul Alfonsin from office last July, has seen his popularity plummet from 80% in September to 33% last month.

Inflation totaled nearly 5,000% for all of 1989, and, with the price rises so far this year, the annualized rate has climbed above 8,000%.

The dollar has surged from 1,000 australs in mid-December to over 5,000 on Friday, and prices soared 80% in January and by about 100% in February. To slow the dollar’s climb, interest rates rose to more than 20% a day last week.

With workers’ buying power collapsing, fears have grown of possible social unrest. Scattered looting occurred last month in some cities, although nowhere near the scale of last May and June that helped push Alfonsin from office five months early.

Economy Minister Gonzalez told reporters earlier Sunday that the eight-month-old government is determined to halt inflation. “This disease has taken us to the edge of the most profound abyss, and we need the whole community’s effort to stop this cancer from devouring us,” he said.

Banks were ordered to remain closed today to allow time to implement the measures and to try to cool off the dollar.