Argentina Lowers Forecast for GDP

Argentina’s government, struggling to turn around a four-year recession that has put the country on the verge of social chaos, said Sunday that the economy could contract even more this year after a painful currency devaluation.

Only two days after the biggest street demonstrations yet by an angry middle class and unemployed Argentines protesting the new government, Deputy Economy Minister Jorge Todesca said gross domestic product could fall 5% this year.

“When we came into government, at first we forecast a 2.6% fall in GDP.... We’ve changed that ... taking us to a 5% contraction. The budget will be based on this forecast,” Todesca told local radio.

Foreign Minister Carlos Ruckauf warned that the country is caught between recession and public demands for an end to bank deposit freezes, as well as pressure from the International Monetary Fund to cut spending and endemic government budget deficits.

“We are on a knife edge--we know we have to reach an agreement with the monetary fund to save our country’s accounts, but at the same time we cannot go against the interests of the people,” Ruckauf told the Corriere della Sera newspaper. “Argentina told the IMF many lies, but now we will reveal all the stark truth. We are ready for decisive measures.”

President Eduardo Duhalde, a member of the Peronist Party and the fifth president in a little more than a month, is cobbling together a 2002 budget plan that will include drastic spending cuts that are needed to win crucial IMF aid.

Only 26 days into the job, Duhalde has not yet said where the spending ax will fall or how the government will help the economy. Ruckauf said measures would include cutting provincial spending and reducing the value-added tax from 21% to 15%.

The IMF has taken a tougher stance with a country that during the last year won pledges of $20billion in IMF aid but failed to meet the agreed-upon macroeconomic targets. The IMF has said that Argentina must show a credible plan if it expects to receive any more cash.

But neighboring governments are pressing for international help for Argentina, mindful of the effects the crisis could have on them.

Indeed, a study published Sunday by the Fundacion Capital think tank said Argentina’s troubles could affect its major trade partners, such as regional powerhouse Brazil, by reducing investor confidence in South America.