During the weekend, Economy Minister Roberto Lavagna unveiled a voluntary scheme that would allow savers to convert their accounts into government bonds. Lavagna said people would have 30 days to decide if they want their accounts converted. Those who choose not to change their accounts will have their money subject to the same restrictions in place since December. Lavagna said savers would have the choice of bonds maturing between three and 10 years from now. Accounts originally denominated in dollars can opt for 10-year bonds that will mature in dollars -- but only at an exchange rate of Ps. 1.40 = $1, thus losing 29 percent of their original principal even if the bonds were to trade at par. Accounts originally in pesos can be converted to five-year peso bonds, bearing 2 percent interest plus indexation, but with indexation only from Monday's peso level of Ps. 3.55 = $1.
Argentines older than 75, those facing serious illness or people who received funds as severance after losing their job can opt for a three-year dollar bond, albeit again with loss of 29 percent of the original principal.
The banking freeze has provoked numerous protests. Coupled with rising inflation, it poses the biggest danger to Duhalde and his team as they try to stay in power.
While the freeze has been needed to halt capital flight which threatened to destroy the country's financial system, Duhalde has had to balance this danger along with that the of new social unrest. Polls show that the vast majority of Argentines want new elections for both the presidency and Congress. Keeping protesters at bay is a must for Duhalde at this point. Aware that his time is running out, he has been doubling efforts to reach an accord with the IMF.
Progress has been made. Congress recently knocked down an "economic subversion" law, which the IMF said was being used to unfairly prosecute bankers and was driving away foreign investment.
A bankruptcy law, viewed by the international business community as favoring debtors, was toughened. Provincial governors say they will slash their budgets by as much as 60 percent, which the IMF has indicated is a must for the release of any new aid. The governors, though, often backtrack on talk of austerity, and until cuts are actually implemented, the IMF is likely to cast a doubtful gaze on their comments.
Despite these modest advances, Duhalde still faces a growing chorus calling for his resignation. "It would be irresponsible of the government to call for elections and leave the country in the state that would result during months of political campaigns," Atanasof said Monday.
Argentina is in its fourth year of recession with no end in sight. In December the IMF cut off existing aid payments to the country, which shortly thereafter defaulted on its $140 billion public debt. Bloody protests led to a succession of presidents, with Duhalde, who was appointed by Congress, being the fifth leader in a matter of two weeks. The unemployment rate is at 20 percent and about half of Argentina's 36 million inhabitants are now living in poverty. Inflation is rising, the economy has contracted by 15 percent this year as compared to the same time in 2001, and the peso, until January pegged one-to-one with the dollar, has fallen to 3.55.
While the IMF has come under fire in many circles for its perceived inaction in helping Argentina, there are growing voices in the international community questioning whether aid should be renewed before the country undergoes near total reform. "Since Argentina already owes the IMF $15 billion, more than five times its 'quota' and therefore far above the Fund's normal borrowing limit, it is reasonable to ask whether a further exception should be made for Argentina," Martin Feldstein, an economics professor at Harvard, wrote on the editorial page of the Wall Street Journal last week.
Despite the harrowing situation, Argentina's politicians have continued to play the blame game in the hopes of evading fault and continuing their political careers. Duhalde, who came into office with broad support within his Peronist Party and the benefit of the doubt in the opposition, has utterly failed to seize control.
Rather than telling Argentines the unpopular truth that much more pain and change is in store before the country can right itself, Duhalde has succumbed to occasional populist musings. He has wavered between heartily enacting the IMF's austerity demands and falling back on temporary measures, such as another fiscal peg, which might calm the populace but will only prolong their pain.
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