Peronism Is Forsaken in Bid to Save Argentine Economy

By , Special to The Christian Science Monitor

THE monthly inflation rate for August of 38 percent would have most presidents searching shamefacedly to explain the failure of their economic policy, but Argentine President Carlos Sa'ul Menem reacted to that figure last Friday with jubilation. It showed, he said, that his economic recovery plan had ``almost beaten hyperinflation,'' which had forced prices up by 196 percent in July. And he looked forward to single digit inflation for the month of September, as his policies begin to take fuller shape.

Argentines have faith in that prediction: Shops are taking credit cards again - a facility they withdrew when interest rates hit 300 percent a month at the height of the country's economic crisis earlier this year - and the financial markets are calm. Small savers and industrial investors alike have found reassurance in the resolute steps Economy Minister Nestor Rapanelli has taken to wipe out Argentina's gaping budget deficit.

Those steps are enshrined in two mega-bills that Congress has just passed after more than a month of bitter debate, laying the legislative foundations for the new free market orientation that President Menem envisages.

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The two laws, one imposing a six-month economic emergency, the other setting out widespread reform of the state, provoked almost as much opposition from ruling Peronist party members of parliament as from the opposition radicals. For the thrust of both laws - away from the protective state and towards a more austere, belt tightening approach - runs counter to the traditional tenets of Peronism.

The economic emergency law authorizes the executive to rule by decree for the next 180 days, and for a further six months if it feels the need, and introduces a wide range of budget-cutting measures. There will be no more government bailouts, for example, for provincial authorities, whose books do not balance, and nor will the government continue financing the losses that state enterprises make. The law also increases some taxes, and halves the tax breaks that have been offered to private firms under industrial promotion schemes.

Imposing a hiring freeze on all state agencies and public companies, the law also frees the government from its former obligation to ``buy Argentine'' regardless of the price, and removes obstacles in the way of foreign investments, which will no longer require special government approval.

Only one article of the law bears the hallmark of traditional Peronist concerns - a clause that raises redundancy payments for the workers likely to lose their jobs from the austerity policies - and Mr. Menem has announced he will seek to have it revoked.

All in all, says Treasury Secretary Rodolfo Frigeri, the Economic Emergency law will bring savings of nearly $1 billion a year, and also paves the way for ``immediate and future structural changes'' in the Argentine economy.

Some of those changes are embodied in the State Reform law, probably the most sweeping and audacious privatization drive that any government has ever attempted.

Over the next six months Public Works Minister Roberto Dromi intends to sell off or carve up some 40 state owned enterprises, from the railway and telephone systems to the national airline's in-flight catering service. He plans to effectively dismantle the state that Gen. Juan Peron first built 40 years ago.

Those companies make a combined annual loss of around $5.5 billion, according to Mr. Dromi, who argues that ``no solution is possible in Argentina without reforming the state, which is not just a government plan, but a challenge for the whole of society.''

Meanwhile Economy Ministry officials are working on the third leg of the government's economic strategy, a sweeping tax reform being drawn up with the help of an official from the International Monetary Fund.

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