IPS-English ECONOMY-ARGENTINA: Manufactured Crisis?
 
Date: Fri, 16 May 2008 15:11:49 -0700

 
Marcela Valente

BUENOS AIRES, May 16   (IPS)  - The ongoing conflict between the
Argentine government and the country's rural associations has prompted
growing numbers of savers to withdraw their bank deposits in pesos
and change them for dollars, even though experts, pointing to the
strong fiscal situation and high levels of foreign reserves, say there
is no reason to worry.

”A sensation of financial crisis has been generated that has nothing
to do with today's economic reality,” Alejandro Vanoli, vice president
of the National Securities Commission, told IPS.

”Unlike other periods in Argentine history, the fiscal situation
is strong today, there is sufficient liquidity in the financial system,
our monetary reserves stand at more than 50 billion dollars, and the
resources exist to meet our debt repayment obligations.

”There is no reason for this hysteria,” said Vanoli, a member of
the Fénix Group, made up of economists at the public University of
Buenos Aires who are critical of the free-market, neoliberal policies
implemented in Argentina in the 1990s.

Vanoli said the concerns of bank account-holders were fuelled by
the lingering confrontation between associations of farmers and agribusiness
interests and the government of Cristina Fernández over an increase
in taxes on exports of grains, which are enjoying a bonanza.

Three weeks ago, the crisis led to the resignation of then economy
minister Martín
Lousteau, less than four months after the inauguration of the administration
of Fernández, who succeeded her husband Néstor Kirchner. Both belong
to the centre-left faction of the Justicialista (Peronist) Party.

Since the day after Lousteau was replaced by Carlos Fernández, people
have been lining up outside exchange bureaus to buy dollars, a currency
that, despite its depreciation, is seen as safer than the Argentine
peso, which has been hit hard by several major crises throughout Argentina's
modern history, especially the late 2001 economic collapse.

Over the last four years, the Central Bank has continuously intervened
in the currency market, maintaining the peso steady at 3.0 to 3.2
against the dollar.

”You never know what can happen tomorrow,” Susana Ramos, a savings
account-holder who purchased dollars this week with the pesos she
was holding in a fixed term deposit account, commented to IPS.

For Ramos and many others, painful memories of the economic crisis
that broke out in late 2001, preceded by the recession of the late
1990s, a ballooning fiscal deficit and a plunge in foreign reserves
to eight billion dollars, remain all too fresh.

Just before president Fernando de la Rúa stepped down in December
2001, the government declared a freeze on bank accounts, and after
interim president Eduardo Duhalde (2002-2003) took office, the currency
board system that pegged the peso to the dollar for over a decade
was scrapped, and the local currency plummeted to four pesos against
the dollar.

Tens of thousands of account-holders had no choice but to turn to
the courts to recover their savings, and some cases in which people
are trying to recuperate the full value of their funds are still dragging
on today.

The news that farmers were likely to extend their strike and intermittent
roadblocks, after a month-long truce, gave rise to rumours of an imminent
devaluation of the peso and an eventual swap of bank deposits for
government bonds.

Although experts say such rumours are absurd, many savers have taken
them seriously, or at least believe they are possible.

The president of the state-run Banco Nación, Mercedes Marcó del Pont,
said the government ”will not allow the dollar to appreciate.” 

The Argentine economy has grown at a rate of over eight percent a
year for nearly five years, and there is a fiscal surplus and sufficient
foreign reserves to defend the local currency.

”I don't rule out the possibility that there are rightwing economic
agents or those with ties to certain economic interest groups that
want to destabilise the government by creating rumours, but they have
no foundation,” said Vanoli, alluding to statements to that effect
by Elisa Carrió, leader of the opposition Civic Coalition.

Former lawmaker Carrió, who ran against Fernández in the October
2007 elections, said ”the current situation is not like 2001,” and
urged account-holders ”not to pay attention to the flood of email
messages aimed at destabilisation.”

An economist with ties to the financial system told IPS that the
conflict with farmers has generated uncertainty which, added to the
rise in food prices seen in the last few months, caused ”small behaviour
changes among people.”

”Bank deposits are growing at a slower rate, but are not falling
off,” clarified the economist, who preferred to remain anonymous.
He also said there was a ”slight increase in the purchase of hard
currency, but one that is not very significant.”

In addition, he noted that in the first few days of the month, increased
activity in bank accounts is normal, after people receive their end-of-the-month
paycheck.

”There have been changes, but nothing that would point to a problem
in the near future,” he said. ”At this time, there is nothing to fear.”

With respect to the public debt, which was restructured in 2005 after
a two-year default on payments, the experts who spoke to IPS said
there was no risk of falling into insolvency, either.

Since the debt restructuring, which included the repayment in full
of what Argentina owed the International Monetary Fund (IMF), the
public debt has been reduced to 144 billion dollars -- an amount which,
although large, ”is manageable,” said Vanoli.

The Finance Ministry reported that the debt was equivalent to 166
percent of gross domestic product in 2002, compared to 56 percent
today.

The composition of the debt has also changed, Vanoli noted. In 2002,
nearly 80 percent was in foreign exchange, compared to 53 percent
in 2007.

Nor are the debt repayment conditions a problem, he added.

The anonymous financial system source, meanwhile, said that although
the debt is growing, it is doing so at a slower rate than the nominal
gross domestic product. Nonetheless, he recommended maintaining a
high fiscal surplus, in order for the government not to lose its repayment
capacity.

”The international markets are closed (to Argentina) and the country
needs something to make its payments with,” he warned.

”If people get scared and do not deposit their money, if they continue
buying up hard currency, and if the state is unable to meet its debt
payment deadlines, the situation will be more worrisome, but for now
it is not,” said the expert.


*****
+ ECONOMY-ARGENTINA:  Mr. Kirchner, the Éminence Not-So-Grise (http://ipsnews.net/news.asp?idnews=42136)
+ ARGENTINA:  Empty Shelves, Drowned Chicks as Farm Strike Rages
(http://ipsnews.net/news.asp?idnews=41823)
+ CHALLENGES 2006-2007:  Argentina's (Economic) Growing Pains (http://ipsnews.net/news.asp?idnews=36102)


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