Argentine Austerity Plan Sets Off Strike

A general strike paralyzed much of Argentina on Thursday, reflecting popular dissatisfaction with the government’s controversial round of austerity measures designed to pull the nation back from the economic brink.

The strike, combined with continued political bickering over how the austerity measures are to be applied, helped push stocks and bonds lower Thursday. There were no reports of serious violence during the 24-hour stoppage.

Gloom also deepened over the high volume of deposit withdrawals from Argentina’s banking system, which continued at alarming levels last Friday, the last day for which final statistics are available.

New government unemployment figures for May released Thursday showed joblessness rose to 16.4% nationwide. Economists warned that, once applied, the austerity measures would cost even more jobs over the short term.

“Argentina’s economy unfortunately is not on a recovery path but a contraction path and the [budget cuts] will complicate the situation over the next few months,” said Juan Luis Bour, an economist with Fiel, an economics think tank here.

Most government offices, factories, public transportation and schools were closed Thursday in a strike called by the nation’s three largest umbrella trade unions. Leaders claimed 70% of the 3.4 million trade union members in Argentina stayed off the job.

“We are demanding that the government have the courage to collect this adjustment not from the people with the least economic resources but from those who have accumulated so much in this economy,” said Hugo Moyano, head of the 600,000-member General Council of Workers.

The largest union of government employees with some 400,000 members, thousands of whom marched through downtown streets here in protest Wednesday, joined Thursday’s general strike in sympathy.

Unions are dissatisfied with $1.5 billion in budget cuts that would trim 13% from government salaries and the same amount from all pension beneficiaries receiving more than $300 a month.

“This adjustment is just an adventure without any possibility of success, even on its own terms,” said Juan Carlos Capurro, an attorney representing the State Workers Assn., known by its Spanish acronym ATE, as he marched Wednesday.

President Fernando De la Rua and his Economy Minister Domingo Cavallo are presenting the “zero deficit” spending cuts package as Argentina’s last chance to avoid economic “catastrophe,” including a possible default on $128 billion in external debt and a devaluation, or both.

Although President De la Rua received grudging support for his austerity program from the nation’s 24 governors earlier this week, he is wrestling with opposition congressmen who say they will not accept deep pension cuts. As one headline put it Thursday: “No one wants to touch the grandparents.” In a Wednesday news conference, Cavallo said he might be willing to raise the floor of the minimum pension affected, but that he would not change the “zero deficit” goal of spending only as much revenue as the government has.

A team from the International Monetary Fund is in Buenos Aires to discuss with leaders the country’s conformity with terms of its $40-billion bail-out package received late last year.

The main stock index the Merval lost 1.7% and bonds lost ground once again, with government issues now trading at yields of about 16 percentage points above those offered by comparable U.S. treasury bonds.

Depositors took $852 million out of private and government bank accounts last Friday, Bour said. Over the previous five business days, depositors fearful that the government might abandon the currency’s one-to-one peg to the U.S. dollar, had taken an average of more than $500 million per a day out of the system.