Argentine leader moves to put brakes on runaway inflation

Despite the threat of a nationwide general strike tomorrow, the Argentine government announced Wednesday a new package of controversial economic measures aimed at bringing the country's runaway inflation rate under control. The measures include a renewed price and wage freeze, another sharp devaluation of the currency (there was a 13 percent devaluation last week), public utility tariff rises, and increases in income and property taxes.

They are designed to administer a shock to the system and bring down the inflation rate to some 2 percent a month.

The rate of inflation over the last 12 months rose 135 percent against 67 percent in the same period to September 1986.

According to presidential spokesman Jos'e Ignacio L'opez, the measures will be the basis of the government's economic policy during its remaining two years in office.

Earlier this week, a senior official of the powerful General Confederation of Workers (CGT) - which groups together most of the country's 3.5 million unionized workers - said: ``If wages are frozen, we will be left no other way out except confrontation.'' He then said a general strike may be called for Friday.

Tuesday night, President Ra'ul Alfons'in met with Saul Ubaldini, the secretary general of the CGT, in an effort to head off the strike.

Mr. Ubaldini did not indicate whether the CGT would proceed with the strike. He did say the government approved a retroactive general pay rise of 12 percent applicable before the freeze is enforced.

Mr. Alfons'in also met Tuesday with Antonio Cafiero, the Peronist who led his party to victory in last month's midterm elections mainly on criticism of Alfons'in's economic record.

Mr. Cafiero said the Justicialist (Peronist) Party would back the anti-inflation bid as long as it did not ``harm the poorer sectors of society, the small and medium-sized industries and provincial finances.''

According to independent estimates, real wages in the industrial sector have fallen by between 10 and 15 percent since the Alfons'in government came to power in December 1983, while public sector wages have fallen by almost 30 percent.

Living standards have been further eroded with the return to two-digit monthly inflation figures since last July.

Argentina has struggled to control inflation for decades. Shortly after Alfons'in took office, after almost eight years of military rule, inflation surged to an annual rate of more than 1,200 percent.

The government has faced an explosion of industrial action and wage demands in the public sector over the past two months, many of which it has felt obliged to concede.

These in turn have thrown off course tight budgetary targets, which were agreed upon with the International Monetary Fund at the beginning of the year and upon which are conditioned further disbursements from a $1.35 billion standby loan and a $1.95 billion loan from Argentina's foreign creditor banks.

The new economic package is, therefore, aimed primarily at increasing government revenue to meet the year-end goal of reducing the fiscal deficit to only 2 percent of GDP from its present 6.5 percent, and to thereby facilitate negotiations with the IMF and foreign banks.

The size of the fiscal deficit has been diagnosed as the principal cause of the underlying inflationary pressure in the economy.

The government's strategy of prioritizing agreements with the foreign banks and negotiating the country's debt commitments, over demands to reflate the domestic economy with the resources used in servicing the debt, has met with criticism from across the political spectrum here.

And the strategy has been widely blamed for the ruling Radical Civic Union's defeat in last month's mid-term elections.

The ruling party lost its majority in the Congress as a result of the defeat. This has deepened divisions within the Radical Party over who should determine the future course of economic policy.

In the past week, the ruling party leadership has been criticized for the lack of discussion between President Alfons'in's Cabinet and the ruling party's base.

Criticism has been especially harsh from the youth wing of the Radical Party as well as from an influential section of the party headed by Federico Storani, the head of the Congressional Foreign Affairs Committee in the lower house.

After a month of ruminating upon his defeat, however, Mr. Alfons'in has apparently decided to sweep aside the criticisms and press ahead with his anti-inflation strategy, in the apparent conviction that it is the only course of action available to him.

The measures are similar to those first adopted in June 1985 with the launch of the so-called austral plan.

That plan centered around a price and wage freeze and kept inflation below 5 percent per month for almost one year. Successive price and wage freezes, however, lasted only two to three months at a time before political pressures forced their abandonment.

Shortly before the announcement of the latest measures, Alfons'in met with most of the leading figures of the opposition.

Although declaring himself ready to face the political costs of the new freeze, the President said he had been encouraged by the willingness of the opposition to discuss potential areas of future agreement.

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