The spectre of an Argentine financial collapse receded at least temporarily yesterday as the senate passed a stringent austerity bill designed to prevent the country defaulting on its $128bn public debt – a step that could destabilise emerging markets worldwide.
The measure is aimed at ending deficit spending for the rest of the current financial year by means of draconian austerity measures, including cuts of up to 13 per cent in public-sector salaries and pensions.
It was a desperately hard-fought victory for President Fernando de la Rua, who is is struggling to cope with one of the worst social and economic crises in Argentina's history. After three consecutive years of recession, the unemployment rate is now close to 18 per cent, and there is widespread public disaffection with the entire political process.
Tomorrow, Mr de la Rua meets Tony Blair at Iguazu, close to the border with Brazil, in what will be the first visit to Argentina by a British Prime Minister since the 1982 Falklands war. Both sides had already made clear that the future of the islands, on which London and Buenos Aires have in practice agreed to disagree, will not be on the agenda. Argentina's financial and economic plight, however, most certainly will be.
Fuelled by endless quantities of espresso coffee ferried into the chamber by uniformed attendants, senators debated the measure through most of the night, in order to present the financial markets with a clear-cut decision by the time trading reopened for the new week.
The initial response was positive, as the Buenos Aires stock market rose sharply in response to the news, and Argentine government bonds strengthened. But if the immediate battle has been won, the war may be far from over.
The opposition Peronist party resisted the measure – but ultimately chose to avert a showdown by sending only enough senators to vote to ensure that the austerity package had a quorum for passage. Had the senate made changes, the entire bill would have had to be re-examined by the lower house, causing further delay and the risk of more devastating falls on the markets.
"Our job is not to put obstacles in the way of a legitimately elected government," Jose Luis Gioja, the Peronist leader in the Senate, said.
But discontent with the measure is seething on all sides, not least among left-wing members of President de la Rua's own Alliance coalition. They, like the Peronists, argue that further spending cuts will only deepen the recession, add to employment, and ultimately worsen the condition they were meant to cure.
Such feelings are shared by many ordinary Argentines, disillusioned and despairing at their country's seventh austerity package in the last two years. Many middle-class professionals have seen their standard of living plunge. With 36 per cent of the population living at or below the poverty line, the unions have drawn massive support for a series of strikes against the zero-deficit policy, blocking the streets with demonstrations during a general strike 10 days ago that brought Argentina's transport system to a halt.
Thousands queue up daily outside the Spanish embassy in Buenos Aires to apply for visas to flee abroad. Many of those who are unable to emigrate are turning to soup kitchens and to barter.
More dangerous still, failure by successive governments to right the economy has led to a distrust of the democratic process in general. Many people lay part of the blame for the present crisis at the door of Carlos Menem, President de la Rua's predecessor, who is now under virtual house arrest amid accusations of corruption and illegal arms sales to Ecuador and Croatia.
But the government, supported by the markets and international institutions, argues that there is simply no alternative to the cutbacks if Argentina, Latin America's third largest economy and biggest debtor, is to preserve both its own and the region's financial credibility.Reuse content