British utilities bid in Argentine state sell-off

(First Edition)

BRITISH utility companies are among several foreign groups involved in changes in Argentina's economy and its forthcoming privatisation programme.

With three months to go to the deadline set by President Carlos Menem, the sweeping scheme is on target, according to Domingo Cavallo, the Economy Minister. 'On a scale of one to 100 we are at 70.'

Mr Cavallo, speaking in Britain last week as part of a European tour to promote Argentina's recent economic success story, said that by the beginning of next year only the country's nuclear power stations, airports and a few provincial electricity companies would remain in state ownership.

British Gas is involved in bidding for gas pipeline and distribution contracts, and Thames Water and North West Water are among five consortia bidding for the Buenos Aires drinking water concession.

British Rail may be interested in Mr Cavallo's plans for privatising Argentina's British-built railways. They involve setting up a track authority and selling franchises to freight and passenger operators.

Foreign investment from the US and Europe has a vital role to play in Mr Cavallo's strategy, and capital has been pouring into the country.

The latest public service to be privatised was the electric power company Segba, which has been split into four generating companies and three distribution networks and sold to investors from France, Italy, the US and Chile.

Argentina's economy has undergone a remarkable turnaround since President Menem took office in 1989. It had been dominated by a bloated public sector from the days of Juan Peron in the 1940s. Budgets are now being balanced for the first time, thanks to cuts in public spending and an overhaul of the taxation system.

Inflation has been brought down from the thousands in the late 1980s to 18 per cent in the year to August, and currency stability has been achieved by pegging the currency to the dollar.

Mr Cavallo said all this had been done without prejudicing economic growth - industrial production increased by 20 per cent in the first half of this year - or causing an increase in unemployment.

He compared Argentina's current performance with that of Japan after the Second World War. 'We have reached a similar turning point,' he said.

He believes a highly-skilled workforce and diversified economy place Argentina in a strong position to become a leading exporter, not only of processed foods but also of specialised quality engineering lines, such as gearboxes.

He claims fixed interest rates have not made Argentine exports uncompetitive because they have been compensated for by tax cuts and labour market deregulation.