Argentine Congress Approves Emergency Economic Plan

Mike Godfrey, Tax-News.com, New York

27 March 2001

Following general approval given by Argentina's Congress to Domingo Cavallo's emergency restructuring plan, it is now very likely that the government of President Fernando de la Rua will be granted most of the new powers it has demanded. Argentina's lower house voted 151 to 81 in favor of ceding some of Congress' lawmaking authority to the President, meaning in practice to Mr Cavallo, the former Economics Minister who has been recalled to face the country's economic and political crisis.

If the bill is ratified today by the Senate, as is expected, Mr Cavallo will be able to bypass Congress on many economic matters. He will have broad powers to reorganise state agencies and restructure the tax system, and will be able to use state assets as collateral for loans.

Mr Cavallo plans to hike customs duties on many goods, but to reduce them to zero on capital imports in order to stimulate industrial production, and to impose a tax on all financial transactions in an effort to lower interest rates quickly.

Despite a downgrade of Argentina's debt by Standard & Poor's, bond and share prices rebounded sharply on news of the vote in Congress.

However, congressmen said that Mr Cavallo would not be able to privatise state entities such as Banco Nacion or the tax collection authority without debate in Congress. Nor would he be able to change state pensions or the labour code, or fire state workers or cut their wages. Still, it was generally felt that Mr Cavallo had already scored a big success just by uniting warring political factions behind his proposals.

Visiting Madrid yesterday, Mr Cavallo was in confident mood: "We don't need more financial support," he said after meeting Spain's premier José María Aznar. "What we have to do in the coming months is to recreate investor confidence."

Back in Argentina, the President was also cheerful: "We will end this long recession and we will resolve the problem of fiscal solvency. We will create conditions so that those who want to will be able to invest and work,'' De la Rua told Argentina's largest daily, Clarin, before the debate in Congress.

Recommended