Argentina Run for The Money

By William R. Doerner

Economy Minister Antonio Erman Gonzalez called it "a week of economic terror." That was no exaggeration, even in a country where economic scare stories are all too common. Among the latest horrors: a sudden year-end collapse of the value of the austral, which plunged from 1,200 to the U.S. dollar to 2,000 before markets closed for the New Year, and price rises of as much as 100% as rumors circulated that the value of Argentina's national currency might be halved again. Shell-shocked citizens waited for Erman, the third Economy Minister since President Carlos Saul Menem took office last July, to announce yet another rescue plan, the fourth in Menem's tenure. The challenge: to dispel the worst outbreak of hyperinflation in Argentina since food riots broke out last May.

The emergency program Erman cobbled is intended to stop the rush to convert australs into dollars and force down the prices of goods. To achieve that, the government has promised to end its frenetic minting of money to finance decades of chronic deficits; no more australs will be printed until the level of Argentina's hard-currency reserves rises. If that promise is kept, it would amount to a tight leash on the inflationary money supply.

To give the government time to put the plan into effect, Erman declared a two-day bank holiday Jan. 2 and 3. By midweek thousands of people had gathered outside the country's bank branches, afraid that the value of their savings would evaporate. But as the value of the dollar sank to roughly the same level as before the austral's collapse, the dollar panic seemed to subside, and relieved retailers began rolling back their hasty price hikes.

During the crisis, Menem remained virtually out of sight. The key question is whether he will stick to this latest plan, since he has failed to honor many other austerity pledges. He had promised to rid the swollen Argentine government of scores of money-losing businesses and to make the country's bloated public sector more efficient, presumably by trimming its size through layoffs or attrition. But Menem, a Peronist whose political base is Argentina's powerful labor movement, has not had the stomach to set the stage for a confrontation with the country's blue-collar workers by carrying out those plans.

He did make a commendable start, and for a few months the hyperinflation he inherited was subsiding. But in early December his program of wage-and-price strictures began to crumble. Interest rates on short-term bank deposits soared out of control, to 600% monthly. Nervous investors began to turn their assets into dollars, and the flight from the austral began in earnest.

Many investors showed little faith in the new monetary program -- or in the latest economic plan as a whole. For fear of panic selling, the country's stock market remained closed all last week.

Economic instability in Argentina inevitably brings worries that the military, which ran the country with brutal inefficiency from 1976 to 1983, might hanker for another turn at power. Those fears were heightened last week when the army chief, General Isidro Caceres, warned that "the army is worried about the economic situation." For Menem, the best way to keep the soldiers at bay and serve out his full six-year term would be to set a course for economic stability and then hold firm to it. In Argentina that is no easy task.

With reporting by Gail Scriven/Buenos Aires