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Signs of traction as Argentina's economy begins recovery


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By Claudio Campuzano
SPECIAL TO WORLD TRIBUNE.COM

June 6, 2002

A few days ago, the son of Fernando de la Rœa, one of Argentina's recent former presidents Ñ the current one, Eduardo Duhalde is the fifth since late December Ñ was being interviewed for TV in a Buenos Aires street when he was slapped by an elderly lady who was walking her dog.

"You are all criminals, and you are not ashamed of it. Neither you, your father nor any of your family," the woman screamed.

This poignant incident is one more example of how Argentines feel that politicians, bankers, judges and other similar individuals are responsible for the country's financial collapse Ñ to the extreme that most of them don't dare showing in public, afraid of incidents like this one.

As time goes by the historic process will sort out responsibilities, but one thing can already be established: the financial problems Argentina is living today are the result of a series of political and economic errors that go back more than half a century.

For now, however, what is most necessary is for the government to find a way to overcome this juncture, as a first step towards mobilizing Argentina's wealth and energy-of which there is an abundanceÑ to redirect the nation towards productivity and development and an economic and financial restructuring that could guarantee future stability. The urgency of this first step is clear.

Some five million Argentines joined the country's poor between October and May, which means the that the serious economic crisis created an average of 24,000 poor per day.

According to data from private consultants Equipos de Investigaci—n Social (Equis), 18.9 million people, of a population of 36 million, live in poverty in Argentina. The high level of poverty is coupled with an alarming rate of unemployment which, according to official sources, is hovering around 24 percent of the active population, creating a social crisis that might at any time explode in a popular uprising.

The combination of the high level of poverty, in a country were poverty was marginal, and the ire of the population against a political class which it blames as the source of its problems, caused last December a bloody popular disturbance that pressed two successive presidents to resign in less than two weeks.

Current President Duhalde, from the populist-left Peronist Party, has not yet managed to stop the economy's fall, and his decision in January to devaluate the peso only managed to trigger an inflation peak that sunk the population even more into poverty.

The good news is that, finally, the government has put together a plan that seems to have the potential for cutting the Gordian knot that the government itself tied up when it froze bank deposits.

Neither depositors nor banks much like the plan proposed a week ago by the government by which the freeze on deposits would be lifted, but agree the loss-limiting offer is a step back from mutually assured destruction.

Six months after billions of dollars of Argentines' life savings were frozen to stop a massive run on banks that threatened a systemwide collapse, the government earmarked up to 30 billion pesos ($8.3 billion) in savings for conversion into government bonds or deposits certificates or to be left in accounts at banks.

This would transfer the responsibility to depositors, because to the extent to which depositors choose to convert their savings will determine whether or not the financial system is rescued and, if so, how many banks survive the crisis.

Depositors complain their life savings, most of which had originally been made in dollars but were forcibly turned into pesos after January's devaluation, would be returned in dollar bonds at a devalued rate or in deposit certificates.

"I don't want a bond or a certificate. I want my money in dollars and I want it now," is the cry heard most often.

Bankers do not like the plan because they cannot anticipate how many of their clients will swap their deposits-making it difficult to predict their business' future viability. However, daily protests against financial institutions might abate now if savers can choose from a range of realistic options rather than face their savings being forcibly turned into bonds as the government had once planned.

The new plan appears to be one of the few ways out of the mess. It's a calculation between politics and the economics of the banking system, but it is a step in the right direction.

If few depositors choose to swap their savings and insist on withdrawing cash that banks do not have in their vaults, then banks and savers are assured bankruptcy. But if enough savers convert their deposits, then that may shift part of the onus of refunding to the bankrupt government in three, five and 10 years through bonds and another part by exchanging deposits certificates for shares and investments. And with this portion of the crisis left behind, Argentina's economy may begin to slowly turn the wheels of its recovery.

Claudio Campuzano (claudio-campuzano@hotmail.com) is U.S, correspondent for the Latin American newsweekly Tiempos del Mundo and editorial page editor of the New York daily Noticias del Mundo. He writes weekly for World Tribune.com

June 6, 2002



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