Argentina Faces Budget Cuts Battle

Argentina’s weakened government plans to defuse a spiraling debt crisis by raising corporate taxes rather than making unpopular deep budget cuts, Economy Minister Domingo Cavallo said.

Facing intense pressure from the International Monetary Fund to balance its budget in return for badly needed aid, Argentina will eliminate at least $4 billion in corporate tax breaks next year, Cavallo said.

After returning from two days of intense meetings with the IMF in Washington, Cavallo said no “drastic” budget cuts were needed to secure $1.3 billion in needed aid that the multilateral lender froze last week in response to Argentina’s overspending.

With local industries crumbling, once-bustling steakhouses near empty, unemployment surging above an estimated 20% and social tensions bubbling over, Cavallo’s odds of rallying a depressed nation behind another wave of spending cuts were slim.

But analysts say Argentina must somehow balance its budget or face sure default on its $132-billion public debt, which would send the economy tumbling further into disaster and perhaps dent the slowing global economy.

Despite widespread fears the debt crisis could lead Argentina to devalue its peso currency, which would instantly bankrupt thousands of people, popular backing for further austerity is also very thin.

But with nearly all other financing cut off amid the marathon crisis and hefty debt payments looming, cash-strapped Argentina may have no choice but to tighten its belt to receive the IMF aid.

Cavallo, with his job said to be hanging in the balance, said his talks with the lender over the weekend were “very, very good,” and he promised to work with local legislators to “inspire credibility.”