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"___  Document 530 of 600  Argentina's halo starts to slip as investors get the jitters: Once seemingly able to shake off external shocks, the country has been generating worries of its own. Ken Warn reports:  Author: Warn, Ken  Publication info: Financial Times [London (UK)] 08 July 1999: 06.  http://search.proquest.com/docview/248758417?accountid=28034  Abstract: Argentina's halo has been looking decidedly tarnished recently. Once a spotless emerging market performer, seemingly able to shake off external shocks emanating anywhere from south-east Asia to Russia, the country has been generating worries of its own for investors. Differentiating Argentina, with its solid financial system, from ""unpredictable"" emerging market players such as Brazil was the name of the game last year. But an enduring recession, the mounting fiscal deficit and confusing signals from the candidates ahead of the October 24 presidential elections have whittled away Argentina's capacity to separate itself from the rest of the pack. The spread between Brazilian and Argentine bonds has narrowed as investors have warmed towards Brazil and grown jumpy at the political noise from Buenos Aires. Shortly after Brazil's January devaluation, the spread between the Argentine Global 2027 bond and its Brazilian equivalent stood at over 500 basis points. Last month it fell to less than 60 basis points.  Full text: Argentina's halo has been looking decidedly tarnished recently. Once a spotless emerging market performer, seemingly able to shake off external shocks emanating anywhere from south-east Asia to Russia, the country has been generating worries of its own for investors. Differentiating Argentina, with its solid financial system, from ""unpredictable"" emerging market players such as Brazil was the name of the game last year. But an enduring recession, the mounting fiscal deficit and confusing signals from the candidates ahead of the October 24 presidential elections have whittled away Argentina's capacity to separate itself from the rest of the pack. The spread between Brazilian and Argentine bonds has narrowed as investors have warmed towards Brazil and grown jumpy at the political noise from Buenos Aires. Shortly after Brazil's January devaluation, the spread be"
"ve your crisis,"" says Mr Molano. But assuming stability in the money supply, the recession should be relatively brief, he adds. How much was the airing of the dollarisation plan merely a response to the Brazilian crisis and the deepening economic gloom? Many senior Argentine officials, from Mr Menem downwards, appear convinced that dollarisation negotiated with the US would bring significant economic benefits, principally through eliminating the devaluation premium demanded by investors. Yet, even the most enthusiastic supporters agree that there are big obstacles to overcome. The treaty would need to be approved by both countries' Congresses. And as JP Morgan noted recently, the debate on ""monetary union of the Americas"" triggered by the Argentines was ""perhaps least advanced in the putative union's elephantine centre, the US"". Even in Argentina, consensus would have to built to give the project momentum beyond the October presidential elections. The opposition Alliance, leading the opinion polls, does not yet appear to share Mr Menem's enthusiasm for ditching the peso as he nears the end of his mandate. ""It would be better to improve the structural position first, rather than dollarise,"" says Adalberto Rodriguez Giavarini, a leading adviser to Alliance presidential candidate, Fernando de la Rua. ""Argentina seriously needs to boost its competitiveness, through cutting the fiscal deficit and labour reform."" Argentina still appears closer to dollarisation than its neighbours. Under the ""convertibility"" or currency board system, Argentines have become used to using the US currency. Dollars circulate widely and can even be withdrawn from teller machines, although they are not formally legal tender. Most mortgages and rental agreements are in dollars, as are more than half the bank deposits. Some analysts and observers still have their doubts. Asked recently how much the dollarisation initiative was a ploy aimed at reassuring the markets, and how much of it was a viable policy track, a senior World Bank official replied: ""About fifty-fifty."" However, Argentine officials appear determined to push the strategy as far as they can before the October polls. The remainder is up to the incoming government, of whatever political party - and to the US. Copyright Financial Times Limited 1999. All Rights Reserved.  "
"___  Document 52 of 500  The Americas: How to Make the Dollar Argentina's Currency  Author: By Steve H. Hanke  Publication info: Wall Street Journal , Eastern edition [New York, N.Y] 19 Feb 1999: A19.  http://search.proquest.com/docview/398702848?accountid=28034  Abstract: The linchpin for Argentina's economic reforms has been its currency board-like system, which was instituted on April 1, 1991. But even though the peso-dollar exchange rate has remained fixed at 1-to-1, there has often been speculation that the peso will be devalued. Consequently, there is still an interest rate spread between Argentine loans in pesos and dollars. During the past year the spread on 30-day loans varied between 50 and 440 basis points. To make Argentina's currency unification with the dollar perfect, Argentine President Carlos Saul Menem has suggested replacing the peso with the dollar. This official dollarization would eliminate the peso-dollar interest rate spreads. Lower interest rates could add as much as two percentage points to Argentina's rate of growth and make it much less variable. Even if sharing seigniorage -- what a central bank earns by issuing its own currency -- with the U.S. could not be negotiated, the cost of forfeiting peso seigniorage (.2% to .25% of gross domestic product) would be much smaller than the gains from eliminating currency risk, reducing interest rates, and stimulating higher economic growth. Dollarization is desirable. But what form should it take? The government of Argentina is considering at least two possibilities: unilateral dollarization, which can occur without a treaty with the U.S., and a limited treaty under which Argentina might regain some of the seigniorage it would lose from dollarization and gain access for Argentine banks to the discount window of the Federal Reserve System as a source of liquidity.  Full text: The linchpin for Argentina's economic reforms has been its currency board-like system, which was instituted on April 1, 1991. But even though the peso-dollar exchange rate has remained fixed at 1-to-1, there has often been speculation that the peso will be devalued. Consequently, there is still an interest rate spread between Argentine loans in pesos and dollars. During the past year the spread on 30-day loans varied between 50 and 440 basis points. To make Argentina's currency unification with the dollar perfect, Argentine President Carlos Saul Menem has suggested replacing the peso with the dollar. This official dollarization would eliminate the peso-dollar interest rate spreads. Lower interest rates could add as much as two percentage points to Argentina's rate of growth and make it much less variable. Even if sharing seigniorage -- what a central bank earns by issuing its own currency -- with the U.S. could not be negotiated, the cost of forfeiting peso seigniorage (.2% to .25% of gross domestic product) would be much smaller than the gains from eliminating currency risk, reducing interest rates, and stimulating higher econ"
"___  Document 540 of 650  Argentina's Peso-Dollar Peg Is a Drag On Efforts to Make Exports Competitive  Author: By Craig Torres  Publication info: Wall Street Journal , Eastern edition [New York, N.Y] 19 May 1999: A19.  http://search.proquest.com/docview/398661240?accountid=28034  Abstract: Despite weakened currencies in just about every major Latin American economy in the past five years, Argentina has hung on doggedly to its link to the dollar. The so-called Convertibility Plan, in which the dollar peg plays a key part, extinguished Argentine inflation and provided a base of stability that allowed the economy to grow at an average annual rate of 5.8% between 1991 and 1998. But because the dollar peg means Argentina can't weaken its currency to make its exports more competitive, it has to find ways to lower the cost of production. In the early 1990s, Argentina increased competitiveness, Mr. (Pedro) Lacoste says, by slashing export taxes and liberalizing port regulations. But the government's attention now seems to be diverted by political shadow plays in a presidential election year. Some new tax policies appear to be working against competitiveness. In an announcement of default yesterday, power generator Central Termica Guemes SA said it wouldn't make a $3.6 million interest payment in part because of ""new taxes levied by the Argentine government on assets and on cash interest payments.""  Full text: BUENOS AIRES -- Four months after Brazil's devaluation, Argentina's recession drags on as companies struggle with high costs and a U.S. dollar-pegged exchange-rate system that many believe is still essential to economic stability. Despite weakened currencies in just about every major Latin American economy in the past five years, Argentina has hung on doggedly to its link to the dollar. The so-called Convertibility Plan, in which the dollar peg plays a key part, extinguished Argentine"
"also follow a bitter row over education spending cuts which brought thousands of protesters out on the streets and led to the resignation of the education minister, Susana Decibe, last week. Teachers and students marched in the capital Buenos Aires yesterday to demand the reversal of the cuts, while police ringed the Casa Rosada, or government house, to keep back protesters. The education budget had been cut by $280m, or some 10 per cent, as part of a $1bn spending reduction agreed with the IMF last month. Mr Fernandez said yesterday spending would now rise $150m from planned levels, allowing some of the education cuts to be restored. The fiscal deficit target has already been raised twice. Last month it was increased by $2bn to $4.95bn, allowing Argentina grea"
"ote that this recipe is challenging. Mr. de la Rua's chief economic adviser is aiming for a fiscal deficit of around $4 billion, but there have been few details on where the cuts will come from. This year, Argentina is expected to finish with a deficit of about $5.7 billion. One area that is likely to be targeted for spending cuts for the fiscal-year 2000 budget is disbursements to provinces. But that is controversial because the opposing Peronists have won the majority of the gubernatorial seats in recent elections. ""A lot of the weight of the adjustment in the budget leans on the provinces, and it is not clear that the Alliance or the Peronists are on board,"" says Vladimir Werning, economist at J.P. Morgan & Co., Argentina. Economists are also less than optimistic about the government's ability to increase tax revenue. Despite aggressive efforts by the current tax administrator, Carlos Silvani, evasion remains in the double-digits in several sectors. And Argentina is already suffocating with high tax rates, so additional tax increases are likely to increase evasion or cause additional economic disruptions. Mr. de la Rua believes he can find savings by auditing federal contracts, and perhaps even tax payments will increase if Argentines can be convinced that state institutions are becoming transparent and effective. ""This country should do away with impunity and corruption,"" says Mr. de la Rua. This ""affects country risk and competition."" But like so many of Mr. de la Rua's proposals, it is a question of boldness and time. Argentina is in sore need of aggressive proposals that can produce an immediate confidence shock. Political horsetrading over the budget, which must be finished by year end, isn't likely to impress any investor. ""They know they are going to have to begin working on Oct. 25,"" even though Mr. de la Rua doesn't formally take office until Dec. 10, says Mr. Abram, the economist. ""They aren't going to have a honeymoon."" Credit: Staff Reporter of The Wall Street Journal  "
"___  Document 333 of 600  Brazil effect shrugged off by Argentina  Author: Balls, Andrew; Michaels, Adrian  Publication info: Financial Times [London (UK)] 19 Feb 1999: 03.  http://search.proquest.com/docview/248706847?accountid=28034  Abstract: The recession in Brazil will at most knock 1 percentage point off Argentina's growth this year, Roque Fernandez, Argentina's economy minister, said yesterday. Although it was too soon to gauge how the trade relationship between Argentina and its neighbour would fare, Mr Fernandez said in an interview that exports accounted for just 9 per cent of gross domestic product, and only a third of that went to Brazil. The minister, in London yesterday for meetings with the Bank of England and UK Treasury, said he was sticking with the official growth forecast of 3 per cent for this year, although that would be reviewed in April when economic figures for the first quarter were collated.  Full text: The recession in Brazil will at most knock 1 percentage point off Argentina's growth this year, Roque Fernandez, Argentina's economy minister, said yesterday. Although it was too soon to gauge how the trade relationship between Argentina and its neighbour "
"___  Document 96 of 500  Brazil's Ills Pressure Latin Trading Bloc --- Argentina Cuts Export Tax; Businesses Are Lobbying For Protective Measures  Author: By Craig Torres  Publication info: Wall Street Journal , Eastern edition [New York, N.Y] 25 Jan 1999: A14.  http://search.proquest.com/docview/398630774?accountid=28034  Abstract: Last week, Argentina cut taxes for exporters and dispatched its top trade official to Brazil as it scrambled to contain damage caused by the currency shift of its largest trading partner. Argentine President Carlos Menem and his cabinet have been slow to react to the Brazilian economic crises. But the real's 29% decline since the devaluation has alarmed Argentine business groups, and they have pressured Mr. Menem for protection or new measures that will enhance their competitiveness. Mr. Menem faces the intricate task of placating top industrialists and keeping unemployment down during a presidential election year, while avoiding protectionist measures that might jeopardize Mercosur, one of Latin America's largest free-trade zones. The four-country trade bloc, comprising Brazil, Argentina, Paraguay and Uruguay, exchanged more than $20 billion of goods and services in 1997. Chile and Bolivia are associate members, which means they partake in some regional accords but aren't fully integrated into the Mercosur regime.  Full text: BUENOS AIRES -- Brazil's devaluation of its currency has put the big South American trade bloc known as Mercosur under the worst strains in its four-year history. Last week, Argentina cut taxes for exporters and dispatched its top trade official to Brazil as it scrambled to contain damage caused by the currency shift of its largest trading partner. Argentine President Carlos Menem and his cabinet have been slow to react to the Brazilian economic crises. But the real's 29% decline since the de"
" severely impaired Argentine competitiveness. Brazil is the destination of a third of all Argentine exports and 60 per cent of manufactured exports. ""It's as if France and Germany both devalued by 25 per cent. What would happen to the UK economy then?"" he says. Some Argentines have even looked enviously at the apparently successful Brazilian devaluation, knowing this option is effectively closed to Argentina, thanks to its high de facto level of dollarisation and history of hyper-inflation. However, behind the political battles before the October polls, there is a seemingly unshakeable consensus that attempting to cure the competitiveness problem by devaluation, almost certainly precipitating financial chaos, would be infinitely worse than the disease. Both the extent and significance of peso overvaluation is a matter of fierce debate. Jeffrey Sachs, the Harvard economist, has called the peso ""chronically overvalued"". But a report last month from Dresdner Kleinwort Benson estimates that the peso is overvalued by about 15 per cent. Any decline in the dollar would bring some immediate relief. The relatively closed nature of Argentina's economy, with exports accounting for only 8 per cent of gross domestic product, is proving a buffer. ""Luckily, Argentina is not a big open trading economy, but a big service-based economy with lots of natural resources. It has suffered, but was never going to be devastated through its trade links with Brazil,"" says Vladimir Werning, economist at J.P. Morgan in Buenos Aires. ""Contagion through capital flows is still more of a concern, despite rising confidence about Brazil."" While there is no competitiveness quick fix, the incoming government should act on pending structural reforms, analysts believe. Mr Werning singled out long-delayed labour flexibility, privatising state-owned banks and passing the ""fiscal convertibility law"", which would put legal curbs on the fiscal deficit and give Argentina a financial cushion. Improving commodity prices, a weaker dollar and strengthening flows of foreign capital may help pull Argentina's economy out of recession faster than expected. But, argues Mr Lopez Murphy, the country would be wise to assume they will not, and plan accordingly. Copyright Financial Times Limited 1999. All Rights Reserved.  "
"___  Document 365 of 600  Switch to dollar is 'a priority' for Argentina  Author: Warn, Ken  Publication info: Financial Times [London (UK)] 05 Feb 1999: 05.  http://search.proquest.com/docview/248566576?accountid=28034  Abstract: Dollarising Argentina's economy was a ""priority of strategic importance"" for the government, Jorge Castro, strategic planning secretary, said yesterday. Mr Castro was speaking after a cabinet meeting in which dollarisation was one of the main themes discussed. Argentina's central bank last month revealed a plan to dollarise the economy through a ""treaty of monetary association"" to be negotiated with the US. While many analysts believe the move was intended partly to send a message to the markets, underlining Argentina's determination not to devalue, officials are eager to develop the plan further. They hope to complete a detailed study to show the US by next month. Whether the plan could advance depended a lot on market reaction, so far favourable, said Pablo Guidotti, deputy economy minister.  Full text: Dollarising Argentina's economy was a ""priority of strategic importance"" for the government, Jorge Castro, strategic planning secret"
" just over 238,000. Exports, which account for about half of production, fell 56.4 per cent. Even before the recession car prices were falling, putting more pressure on manufacturers' margins. Some analysts have even begun to question the long-term viability of the industry in Argentina, with its fixed exchange rate, given the huge price advantages of its giant neighbour. But at Fiat's modern plant outside Cordoba, the heart of the industry in Argentina, no one believes that local car-making is set to die out. There is even cautious optimism that at least some of the early promise can eventually be fulfiled. ""There are no marginal producers here, and no one is likely to withdraw from the market,"" says Vittorio Buffoli, general manager of the plant. ""Fiat has decided to continue with its plans in this country, and we are ready to respond to the market when it improves."" Fiat has invested more than $600m in the plant, which is more modern than the company's factories in Brazil and has some facilities, such as the paint shop, which are among the most modern in the world. The plant has a capacity of 550 cars a day, which could easily be expanded, Fiat says. At its peak in August 1997 it was making 370 a day, but production is now down to 212. The story is the same for other manufacturers. Production would have been even lower without a programme, financed by the government, manufacturers and dealers, to subsidise purchases for buyers wishing to scrap cars which are more than 10 years old. As this plan steadily winds down next year, a new programme will start which subsidises sales of cars with high levels of local content and which meet strict environmental conditions. The subsidy plan has been partly responsible for a modest increase in production, which rose 3.6 per cent from the previous month in October but was still 19.7 per cent below the period a year earlier. Exports have also shown some signs of recovery, albeit from very depressed levels, rising 18.9 per cent in October over the previous month. Another question mark hanging over the sector is uncertainty over the legal framework which will govern the industry from next year onwards. The existing b"
"national Monetary Fund yesterday completed its third review of Argentina's performance under the multilateral lender's extended fund facility (EFF) arrangement with warm praise for the government's continuing efforts at economic stabilisation. It approved the revision of the Argentine government's $2.8bn EFF programme, which included an increase in the ceiling for the federal government deficit to $5.1bn (1.5 per cent of gross domestic product) from $2.95bn (0.8 per cent of GDP). The approval allowed Argentina to draw on another $1.3bn of the EFF loan. S"
"___  Document 100 of 600  Cavallo says Argentina could float its currency  Author: Lapper, Richard  Publication info: Financial Times [London (UK)] 17 May 1999: 05.  http://search.proquest.com/docview/248566184?accountid=28034  Abstract: Argentina could eventually float its currency, the peso, while maintaining its convertibility with the US dollar, according to Domingo Cavallo, the former economy minister and architect of the country's ""convertibility"" scheme. Such an arrangement could help make possible a currency union among members of the South American Common Market (Mercosur), said Mr Cavallo, who dismissed the idea of replacing the peso with the US dollar as ""historically not a viable solution"". The proposed combination of convertibility and a floating exchange rate would depend on a steady improvement and continued growth of international confidence in the Argentine economy, said Mr Cavallo during a visit to a regional meeting of the World Economic Forum in Santiago, Chile, last week.  Full text: Argentina could eventually float its currency, the peso, while maintaining its convertibility with the US dollar, according to Domingo Cavallo, the former economy minister and architect of the country's ""convertibility"" scheme. Such an arrangement could help make possible a currency union among members of th"
"omic growth. Dollarization is desirable. But what form should it take? The government of Argentina is considering at least two possibilities: unilateral dollarization, which can occur without a treaty with the U.S., and a limited treaty under which Argentina might regain some of the seigniorage it would lose from dollarization and gain access for Argentine banks to the discount window of the Federal Reserve System as a source of liquidity. My own preference is for unilateral dollarization, now rather than later. It would bring down interest rates quickly and does not require the approval of the U.S. government or the involvement of the Fed. Argentina would need about $15 billion to replace the peso monetary base with dollars -- that is, to trade every one of Argentina's pesos for dollars. This swap of currencies would be feasible because, in consequence of the Convertibility Law, the central bank's liquid reserves are about $24 billion. The second possibility, a limited treaty with the U.S. that would allow Argentine banks to have access to the Federal Reserve's discount window would be far from optimal. One reason is that, contrary to what most economists think, it is undesirable to have a central bank as a lender of last resort. All the most expensive rescues of banking systems have occurred under central banking. Argentina, in fact, holds the record for the most expensive bank rescue in proportion to the size of its economy: the banking crisis of 1980-82 cost 55% of GDP. Argentina already has in place a liquidity fund of $6.7 billion. The key provision of the fund, which was established in December 1996, is the something called the Contingent Repurchase Facility. Under this program, the Argentine central bank has the option to sell certain domestic assets for dollars to a group of banks subject to a repurchase clause. As of October, 14 international banks were participating in the facility. The assets underlying the repurchase facility included $6.2 billion in Argentine U.S. dollar-denominated bonds and up to $500 million in dollar-denominated Argentine mortgages. Consequently, the facility can provide emergency liquidity, but is not a lender-of-last-resort arrangement which by its nature also provides the government with the power to inflate. Combined with the extensive internationalization of Argentina's banking system (which makes the international banks' head offices, in effect, lenders of last resort to local branches) current arrangements for emergency liquidity are adequate for a dollarized system. Furthermore, dollarization does not prevent the government from being a lender of last resort: the government's fiscal authorities can lend to banks directly. Direct lending by the government is likely to be more transparent than lending by a central bank. Official dollarization would require the monetary base -- peso notes and coins, plus peso deposits of financial institutions with the central bank -- to be swapped into dollar assets. Dollarization can be star"
"h with the International Monetary Fund. He also said Argentina would again seek to renegotiate its fiscal deficit target with the IMF from the $4.95bn agreed last month, itself $2bn up on the previous target. Revenues have been badly hit by the recession that started with the Russian debt crisis last August and sharply reduced Argentina's access to much-needed foreign capital. Recession and devaluation in Brazil heightened the problems. With lower revenues and higher borrowing costs, the government has been forced to increase its borrowing programme from $14bn to more than $16bn this year. Some analysts believe there is a risk of entering a vicious circle of borrowing to plug ever larger financing gaps. ""I am incredibly worried about the debt position,"" says Walter Molano, economist at BCP Securities. ""A point is going to come when the government just faces an unsustainable level of debt."" While many other analysts believe the debt position is perfectly sustainable, they acknowledge that the crisis has brought the issue more into the spotlight. As exports have shrunk along with sagging commodity prices, Argentina's debt ratios have inevitably worsened. J.P. Morgan forecasts that the ratio of total external debt to exports will grow from 354 to 399 per cent this year, while interest payments as a percentage of exports will rise from 24 to 28 per cent. The government does not share the concerns over debt. It maintains the debt is well-structured and questions whether debt-export ratios provide a good measure of ability to pay. Officials also believe that recovery will gather force in the second half and steadily ease these fears, which are being generated in a jumpy atmosphere at the bottom of the downturn. ""If exports recover, the people who look at these [debt] numbers and worry will worry less,"" says Miguel Kiguel, financing under-secretary. Many private sector forecasters also see a second-half bounceback. Both the competitiveness dilemma and Argentina's fiscal problems were highlighted last month by Ricardo Lopez Murphy, chief economist at FIEL private think-tank, when he called for a 10 per cent public sector salary reduction as part of $5bn of spending cuts. Mr Lopez Murphy said low commodity prices and devaluation around the globe - especially in Brazil - had"
". A second choice is Ricardo Lopez Murphy, who is 48 and chief economist at the Foundation for Latin American Economic Investigations, Argentina's most important economic think tank. He has a master's degree from the University of Chicago, and he cultivates an image of a tough-minded reformer. Some of Mr. Lopez Murphy's aggressive policy suggestions have been picked up by political rivals and plastered on billboards around Buenos Aires as a warning of the austerity to come if voters elect Mr. de la Rua. For that reason, Mr. de la Rua has put some distance between himself and the outspoken economist. Mr. Lopez Murphy is viewed as a clutch player. ""His orthodoxy would generate a phenomenal confidence shock,"" Mr. Abram says. Mr. Lopez Murphy was traveling and unavailable for comment. A third contender for the economics job, as well as other cabinet posts, is Adalberto Rodriguez Giavarini, 55, a former finance chief of the city of Buenos Aires. Mr. Rodriguez Giavarini cleaned up city finances, wiping away a troublesome deficit, and recovered enough confidence in fiscal accounts to sell a $500 million unsecured bond to international investors. One of the hallmarks of his administration was a transparent bidding system for public contracts that is said to have rooted out waste. He has carried this process into his ideas about budget cutting and said federal entities should justify in a budget process why they should even get funding in the first place. In May 1998, Mr. Rodriguez Giavarini resigned from Mr. de la Rua's city cabinet in a clash with other functionaries who threatened his policy of transparent public spending. Yet the low-profile economist remains on good terms with Mr. de la Rua and is likely to enjoy a cabinet post in defense or the Foreign Ministry, if not the Finance Ministry. Mr. Rodriguez Giavarini was unavailable for comment. Credit: Staff Reporter of The Wall Street Journal  "
"___  Document 225 of 650  U.S. Treasury Briefs Argentines On Pressing Economic Reforms  Author: By Michael M. Phillips and Craig Torres  Publication info: Wall Street Journal , Eastern edition [New York, N.Y] 02 Dec 1999: A, 17:5.  http://search.proquest.com/docview/398756002?accountid=28034  Abstract: In a meeting nine days before Mr. de la Rua takes the presidential sash, Mr. [Lawrence] Summers told him that only by cutting the massive Argentine budget deficit, easing restrictive labor laws and ensuring that contracts are honored will Argentina regain investors' favor. Mr. Summers's agenda is largely in line with the thinking of Mr. de la Rua's economic team. But while fiscal probity sounds good, it won't come easy in Argentina. The country faces a simmering problem with the insolvency of some provinces that are smothering under a total debt load of $17 billion ranging from bank loans to foreign bonds. Yesterday, a member of Mr. de la Rua's economic team said provincial solvency is a more urgent priority for the new government than labor or judicial reform.  Full text: BUENOS AIRES -- Even before the new Argentine government has taken office, U.S. Treasury Secretary Lawrence Summers came to town and let President-elect Fernando de la Rua know exactly what he has to do to lure foreign investors back to this recession-ridden South Amer"
"ded to close last week only 0.8 per cent down. But with the index falling nearly 3 per cent again in early trading on Tuesday, analysts took little heart from the rally. ""Friday [when the index leapt 4.7 per cent] was a flash in the pan,"" says Christopher Ecclestone, head analyst for Buenos Aires Trust Co, a local investment boutique. ""Overall, the market is in drift, with a negative overtone."" Few expect a significant improvement before October's presidential elections, given the uncertainty over Argentina's future economic management. ""Investors are jumpy,"" Mr Ecclestone says. ""Roque Fernandez [the Argentine economy minister] is a lame duck, and they don't know who they should be listening to."" Last week's slump was triggered by reports that Eduardo Duhalde, presidential candidate for the ruling Justicialist Party, would seek a one-year moratorium on Argentine debt payments. Many felt the market over-reacted to the news, given that neither of the leading candidates has shown any real intention of breaking with economic orthodoxy. But Jos Costa Buck, local analyst for Flemings, the investment bank, says: ""These things act as detonators."" With the Argentine economy expected to shrink as much as 4 per cent this year, investors have woken up to long-term structural problems that will be in"
"___  Document 277 of 650  Argentines Await Choice for Finance Post --- Presidential Favorite Has Three Main Contenders To Lead Economic Plan  Author: By Craig Torres  Publication info: Wall Street Journal , Eastern edition [New York, N.Y] 22 Oct 1999: A17.  http://search.proquest.com/docview/398725460?accountid=28034  Abstract: One of the first challenges faced by the new economic team will be the financing of about $16 billion in Argentine debt in global markets next year. The second challenge is to regain momentum on economic reforms. The Argentine peso is fixed to the U.S. dollar, and without additional policies that enhance productivity or lower costs, Argentine companies risk losing competitiveness. Mr. De la Rua's top pick for the Finance Ministry post appears to be 53-year-old Jose Luis Machinea, who heads a center-left think tank in Argentina. Mr. Machinea has a doctorate in economics from the University of Minnesota, and his peers say he is a smart economist steeped in economic theory. Nevertheless, he is overshadowed by Argentina's instability during the late 1980s when he was central bank president. He left that post in March 1989, and shortly thereafter, following a failed stabilization plan, Argentine inflation spiraled out of control. Mr. Machinea doesn't have the unqualified support of Argentine businessmen or international investors, but he is working to gain their confidence.  Full text: BUENOS AIRES -- Fernando de la Rua is favored to win Argentina's presidential race Sunday, and his choice for the Finance Ministry will be an anxiously awaited signal on the course of the country's economic policy. Argentina's finance minister is second in importance to the president. The country doesn't have enough savings to finance its own growth or debt load, so the finance minister must constantly bolster the confidence of international investors. One of the first challenges faced by "
"ury and Federal Reserve officials. Conversations with the US on the issue will gradually become more formal, Argentine officials hope, developing into a structure for taking the project forward. They also believe they are laying a groundwork which will be useful not only to the new government taking office in December, but also to other countries considering dollarisation. ""Clearly the decision to go ahead finally will be in the hands of the next government, and the US,"" said Pablo Guidotti, deputy economy minister. ""But this issue is growing in importance internationally, and I don't think the next government can simply brush it away."" Officials may well have been encouraged fully to adopt the dollar by market rumours this week of a possible peso devaluation, sparked in the brittle pre-election atmosphere. The authorities moved to slap the rumours down hard. Work on dollarisation is being overseen by Mr Guidotti, Mr Pou and a small group of central bank officials. Their forthcoming review focuses on the question of seigniorage, the revenue that countries gain from issuing currency. Seigniorage arises from the fact that currency pays no interest. Anyone holding, say, $100 (£61) cash could instead buy a Treasury bond and earn interest on it. By holding dollars, it is as if one is giving the US government an interest free loan. Under the currency board system operated by Argentina, seigniorage is the interest on the reserves - mainly US Treasury bills - used to back its monetary base. Argentina's seigniorage currently amounts to about $750m (£457m) a year, US seigniorage to about $25bn. Argentina could dollarise by selling enough US Treasury bills from its reserves to buy the $15bn-worth of dollars required to substitute the peso notes and coins in circulation. But in doing so, Argentina - or any other country dollarising without a formal accord with the US - would automatically lose seigniorage. Under the negotiated dollarisation which Argentina envis"
"___  Document 168 of 400  Special: Argentina's economy: Keeping the reform alive  Author: Anonymous  Publication info: The Economist 353.8142 (Oct 23, 1999): 23-26.  http://search.proquest.com/docview/224063314?accountid=28034  Abstract: Until recently, Argentina's economic reforms had brought it high growth and international acclaim. Today, the country faces a severe recession and nervous investors. At issue is whether the new president, most likely Fernando del a Rua, can turn things around. Given all the uncertainties, Argentina's future is difficult to predict. Recent history cautions against excessive pessimism. In less than 10 years, Argentina's model has suffered and survived shocks that would have tested far stronger economies. Where Argentina ends up will depend on its new president's economic good sense, political acumen and good fortune.  Full text: Headnote Until recently, Argentina's economic reforms had brought it high growth and international acclaim. Today, the country faces a severe recession and nervous investors. Can a new president turn things round? PUENTE DE LA NORIA is a place where workers change buses, a mass of traffic and bustle on the edge of La Matanza, a suburb of Buenos Aires. It is also a place where the old Argentina meets the new. Dusty shops crowd the pavement, selling everything from bus tickets for Bolivia to cheap shoes from Brazil. These family-run shops, where paying tax is unheard of, are the backbone of Argentina's informal economy. Alongside them stands EKI, a gleaming discount mini-market, where the packaging is bright, the management is professional, and taxes are paid. Run by Gustavo Lopetegui, a former consultant for McKinsey's, EKI has 54 stores in Buenos Aires, and a new one opens every six days. The arrival of discount supermarkets in the poorest suburbs of Buenos Aires is a sign of how far Argentina's economic revolution has come. Under Carlos Menem, its president since 1989, the country has been widely seen as a model of free-market reform in Latin America. It fixed its peso at parity with the dollar in 1991, tore down trade barriers, and privatised and deregulated. For much of the decade, the economy boomed. But now, as the voters go to the polls to choose a successor to Mr Menem on October 24th, the Argentine model looks less lustrous. For the second time in four years the country is in the grip of a deep and long recession (see chart i). The economy is likely to contract by 3.5% this year. Unemployment officially stands at 14.5%. In the EKI stores in poorer areas, sales change sharply around the 15th of every month, as salaries run out and customers switch from meat to pasta or beans, and from orange juice to cheaper powdered drinks. A year ago, says Mr Lope-- tegui, this belt-tightening did not take place until around the 25th of the month. Worse, the number of homeless people in Buenos Aires, South America's wealthiest city, has tripled in the past two years. In many countries, hard times would breed impatience with economic policies. Yet the clear favourite to win the presidency is Fernando de la Rua, who is leader of the opposition Alliance but has based his campaign on a commitment to existing policies. He has promised fiscal austerity and to maintain ""convertibility"", the Argentine name for the rigid currency-board arrangement which pegs the exchange rate by law. His chief opponent, Eduardo Duhalde, the candidate of Mr Menem's Peronists, has campaigned as a populist, promising big increases in pensions, and talked of a moratorium on Argentina's foreign debt. For Mr de la Rua to be in the lead seems odd. But Argentina in the 1990s is a place where populism is distrusted, and where economic stability is prized above all else. To understand why, it is necessary to remember the Argentina of a decade ago. It was a closed, inefficient economy with a history of chronic macroeconomic mismanagement, suffering its second bout of hyperinflation in ten years. Confidence in the currency had collapsed as prices had risen by more than 4,000% in one year. Most Argentines over the age of about 20 have a searing memory of all this, and are determined not to repeat it. That explains the broad popular appeal of""convertibility"" as a bulwark against economic chaos. A second reason for demanding continuity is that Argentina's radical reforms at first yielded spectacular results. Inflation was killed. But also the economy grew by 8% a year between 1991 and 1995, as productivity soared, exports boomed (rising by an average of 12% a year from 1991 to 1998), and foreign investment poured in. There were casualties, too, as high unemployment rates and the scores of derelict factories that stud the former manufacturing suburbs around Buenos Aires testify. But for many Argentines life in the early 199os grew much better. Moreover, Argentina's fierce faith in its reforms has survived some tough tests. In 1995, in the aftermath of Mexico's devaluation, Argentina lost 18% of its bank deposits as savers, fearing a sudden currency collapse, grabbed their money. That loss of confidence stretched the currency board to the limit, and precipitated a dramatic recession: GDP shrank by 2.8% in 1995. But Mr Menem stuck to his guns, and won a second term in an election held in the depths of that recession. Helped by strong growth in the world economy, Argentina's exports soared and the economy bounced back. The currency board was strengthened and the banking system bolstered. High growth was resumed. A model in trouble The question now is whether Argentina can bounce back once again by sticking to its reform model. Unfortunately, circumstances are harder than in 1995. In the past couple of years Argentina has been hit by three big extemal shocks, which are largely responsible for the current recession. First, Russia's decision to default on its debts in August 1998 brought about a second liquidity squeeze. But this time it was not Argentine savers who panicked, but foreign investors. Interest rates on Argentine bonds shot up. Most firms found it impossible to raise money abroad; even the government had to scrabble to raise the money it needed to roll over public debt and to finance its fiscal deficit. With foreign financin"
"ages, sharing seignorage is ""the central plank"", said one central bank official. The reasons are both political and economic. It would be politically difficult for the Argentine authorities simply to renounce about $750m in annual revenues - a figure likely to rise in the future. But the revenues from shared seigniorage could also be used to back a liquidity facility allowing it to function as ""lender of resort"". Whether this facility was maintained with the private sector, along the lines of Argentina's existing $6bn-plus ""repo"" facility with a dozen international banks, or with the US authorities, is a matter of detail, according to policymakers. The current level of seigniorage income could back a credit line of some $15bn, equivalent to almost 20 per cent of bank deposits, Mr Pou said earlier this month. The great joy of shared seigniorage, according to local officials, is that it would not imply a cost to the US, helping to allay some of the doubts that dollarisation has raised in Washington. The US would itself have more seigniorage as a result of the increase in dollar demand, making dollarisation cost-neutral for both countries. Argentine officials have ready answers to some of the broader arguments that are raised against dollarisation, such as the concern that dollarising countries are abandoning independent monetary policy for ever. By adopting the convertibility system that pegs the peso at par to the dollar in 1991, Argentina has already abandoned independent monetary policy - an ""independence"" which anyway ended only in hyperinflation. Conversion of peso contracts and deposits into dollars is also less of a problem than some commentators believe, they maintain. About 56 per cent of Argentine bank deposits are already denominated in dollars, as is the bulk of Argentine debt and most long-term contracts, including rental agreements and mortgages. Letters to the Editor, Page 20 Copyright Financial Times Limited 1999. All Rights Reserved.  "
"w restrictions on its exports. Brazilian diplomats were yesterday lobbying the other two Mercosur members, Uruguay and Paraguay, for support against what they view as the growing protectionist attitude of the Argentinian government. The mounting trade tension between the two biggest economies in South America is a result of a regional recession, Brazil's devaluation in January and the forthcoming elections in Argentina. Argentina issued a decree on Monday allowing it to take measures against excessive imports from any country, including its Mercosur partners. Earlier this month Argentina placed restrictrions on imports of Brazilian textiles and is considering similar measures for shoes and paper. Brazil said Argentina's move was against the Mercosur founding treaty. It has called for an emergency meeting of Mercosur members next week and has pulled out of tariff negotiations over issues such as trade in vehicles and sugar. However, officials said Brazil would not retaliate against Argentina. The Argentine government criticised the Brazilian decision to suspend talks. ""We do not think the reaction of the Brazilian gov"
"access to international financial markets, saying that investors worried by regional contagion were not noticeably marking down Argentina. ""Fortunately there is differentiation going on. It took two to three months to recover after the Asian and Russian crises but just three weeks after Brazil devalued we issued Argentine bonds,"" he said. However, if a crisis did hit, the International Monetary Fund had already indicated it was ""open to discussions"" over an extension of Argentina's credit facility. Dollarisation - under which Argentina would scrap the peso and start using the US dollar as its currency - was very popular in Argentina, Mr Fernandez said, adding he was ""very serious"" about the concept. Talks with the US over a monetary treaty had not advanced beyond the informal stage, but further discussions would be taking place in the near future. Negotiations could take two to three years to complete. However, the Argentine government was prepared to dollarise very quickly if there was a speculative attack on the peso. ""We cannot be defeated by the market. We will dollarise, and that will be the end of the speculation."" Copyright Financial Times Limited 1999. All Rights Reserved.  "
" before Argentine presidential elections, the agency lowered the long-term foreign currency ceiling from Ba3 to B1, citing a deteriorating economic position. The downgrade is particularly painful for Buenos Aires, which must rely heavily on international capital markets to finance its budget deficit. The country faces an external borrowing requirement of about $17bn (£10bn) next year. But a biting economic recession and worries over the presidential elections have made investors skittish about lending, driving up financing costs. The rating cut came ahead of Argentina's launch today of a$1.5bn World Bank-backed bond issue, but is expected to have little impact on the issue. The country's economy has been reeling since the emerging m"
"creasing the funds available under the accord would have signalled strong IMF support for Argentina in the wake of the Brazilian crisis. It would also have underlined the multilateral lending agencies' determination to minimise the risks of ""contagion"" in the region from Brazil's January devaluation. Argentina has so far not drawn down any of the existing $2.8bn contingency funding. Devaluation in Brazil, the country's biggest trading partner, has sharply cut growth forecasts for Argentina, with many private sector analysts forecasting recession. Both government and the private sector could face a prolonged period of higher borrowing costs. This month Argentina and Mexico launched the first Latin American sovereign bonds since Brazil floated the Real. The government is eager to create the largest possible funding cushion. Copyright Financial Times Limited 1999. All Rights Reserved.  "
"ign ratings over the medium term,"" said Jaime Sanz, director of Latin American sovereign ratings. Argentina's central bank is working on a proposal to dollarise the economy through a ""treaty of monetary association"" negotiated with the US. Since 1991 the Argentine peso has been fixed to the dollar at par through a currency board system, under which pesos in circulation must be fully backed by reserves. Ken Warn, Buenos Aires Copyright Financial Times Limited 1999. All Rights Reserved.  "
"g costs. It has had informal talks on using $200m (£125m) of coming World Bank loans to underwrite fresh borrowing, said Pablo Guidotti, deputy economy minister. Argentina has faced higher borrowing costs in the wake of last year's Russian debt crisis. Investor worries over the October 24 elections and the country's prolonged recession have also increased pressure on borrowing spreads. Using World Bank guarantees could generate both cheaper borrowing and more leverage, Mr Guidotti said. In the next few weeks the World Bank and the Inter-American Development Bank are each due to disburse $1bn of loans agreed with Argentina last year. The aim would be to use some $200m of the World Bank tranche as guarantees for bond issuance. If this was approved by the Bank, the move could set a precedent for future lending to emerging market borrowers. The discussions emerged as Argentina s"
"n devaluation, the Argentine commitment to maintain the currency board must be credible. However, the spread on peso-denominated loans over dollar-denominated loans reflects the residual risk that recession or politics may force the authorities to abandon convertibility. To eliminate this cost, or to fend off a speculative attack, the government could simply dollarise the economy. Given that a currency board removes monetary autonomy anyway, the major costs would be political. The economy ministry says that it is seriously considering such a move, and has opened negotiations with the US about how it would work, and how to minimise the costs to the public finances of putting US dollar notes into circulation in place of pesos. To a certain extent, these talks are designed to demonstrate the government's commitment to the currency board. But they also reflect an economic and political reality. Convertibility is highly popular because it has delivered the economy from its debilitating, hyper-inflationary past. In the event of a crisis, as yet unforeseen, the government will dollarise rather than devalue. Copyright Financial Times Limited 1999. All Rights Reserved.  "
"text: ARGENTINE DOLLARISATION 'Better debt rating possible' Argentina could qualify for higher sovereign debt ratings, possibly even investment grade, if it fully dollarised its economy, according to Duff & Phelps credit rating agency. However, other steps, such as continued fiscal restraint, would also be required. Full dollarisation ""along the lines suggested by government officials in recent days could strengthen the country's creditworthiness and have a positive impact on its sovere"
"expected recession in Brazil, Argentina's top auto-export market. The chill settling across Argentina's motor works threatens the government's 3% economicgrowth forecast for this year because auto production and related industries account for 8% of industrial production. The knockon effects of thousands of suspended workers worried about long-term job security will broaden the impact. Argentina's largest auto union says 9,000 of its 10,000 members will be temporarily suspended starting Feb. 1. ""This year is going to be tough,"" says Antonio Quintana, an undersecretary in the mechanics and auto-workers union known as Smata. ""The local market will be shot if they don't raise tariffs"" against Brazilian exports. So far, Argentine officials have been careful not to threaten their largest trading partner with protectionist measures. But if the auto industry continues to deteriorate, they may be forced to do so soon. Last week, Italian auto maker Fiat SpA announced it would use rolling-plant suspensions to adjust for tumbling auto demand. If retail inventories don't fall, its new $600 million plant in Cordoba will halt production for several days, and maybe weeks, until stocks are reduced, says spokesman Eduardo Bischoff. Like most auto makers in Argentina, Fiat will pay workers 75% of their salaries during the suspensions; but unions and auto executives are bracing for more drastic measures if Brazil doesn't stabilize. ""We are going to have to lower production because of the fall in the Brazilian market,"" adds Alberto Garcia Carmona, a director of GM Argentina SA, a unit of General Motors Corp. ""Brazil is our largest client."" Volkswagen AG has cut back to a four-day workweek. A spokesman for Ford Motor Co. Argentina couldn't be reached for comment, but there isn't an auto plant in the country that isn't expected to slow or even idle production for several days this year. Nobody is sure where Brazil's currency will settle, but it is almost certain wages won't keep up with inflation, giving some Brazilian producers an advantage over the competition in Argentina, which has fixed its currency to the U.S. dollar. Parts companies are the most vulnerable, auto executives say. The Brazilians already provide anywhere from 10% to 30% of the content for Argentine autos. Local auto makers will probably increase use of Brazilian parts to keep sticker prices low in Argentina. ""We have to lower costs,"" says Mr. Garcia Carmona, the GM Argentina direc"
" with decrees in the style of a party boss, he is expected to broker deals with governors, Congress, unions and parties. ""I think Mr. de la Rua is the best thing for Argentina politically at this point precisely because he will have to work through institutions,"" says Sylvia Maxfield, senior lecturer in Latin American studies at Harvard University. ""But the million-dollar question is whether the market will support that. Argentina doesn't have time"" to dally on new economic reforms. Next year, Argentina must refinance about $16 billion in government debt. A deal between the International Monetary Fund and the new government should help backstop those financings and assuage some of the market's worries. But the IMF package is also likely to come with demands for better labor reform and tax collection; the government also needs a new revenue-sharing deal with the provinces, where the majority of the governors are Peronists. Analysts are already pessimistic about Mr. de la Rua's ability to push bold laws through the legislature. ""I don't think the pace of structural reform will be that strong with a government that needs to be in negotiation with a Peronist majority in the Senate,"" says Martin Redrado, president of Fundacion Capital, a think tank. A wild card in political scenarios is Mr. Menem, who will continue to play a high-profile role in his party. Mr. de la Rua has already telegraphed both peace offerings and warnings to the Peronists. ""I speak of a new policy based on responsibility, dialogue, and the search for common interests,"" Mr. de la Rua said in an interview with the Argentina daily La Nacion published Saturday. ""I know I will find a good response because the reality demands this kind of effort."" Credit: Staff Reporter of The Wall Street Journal  "
"nd sapped the desire for political change. Of those questioned in the Gallup Argentina poll, 39 per cent responded that the government was ""very or quite capable"" of confronting the economic crisis, but only 21 per cent said the same of the Alliance. The Alliance presidential hopeful, Fernando de la Rua, is still the most popular candidate, on 35 per cent, followed by the Peronist Buenos Aires province governor, Eduardo Duhalde, on 22. Copyright Financial Times Limited 1999. All Rights Reserved.  "