"Get Up and Walk!"

By Guy D. Garcia

The situation demanded strong words, and President Carlos Saul Menem did not shrink from using them. In his July 8 inaugural address, Menem urged his citizens to "Get up and walk!" Argentina, he declared, "is broken, devastated, razed. Inflation has reached chilling levels, but we aren't going to administer the decline. We will pulverize the crisis."

Just 36 hours after Menem's address, his administration announced the first steps of "unusually severe, exceptional and emergency" measures designed to break the nation's hyperinflation (114% for June alone) and to restore confidence in its virtually insolvent government. Among them: a 90-day wage- and-price freeze, a 116% devaluation of the austral to 650 vs. the U.S. dollar and an aggressive privatization of most state-run companies. Because the end of many government subsidies will bring unavoidable price increases for some goods and services, all workers will be given a bonus of 8,000 australes ($12.30 at the new rate).

By early last week, Menem's economic medicine was already showing some positive effects. On Monday the black-market rate for dollars dipped below the official exchange rate for the first time since the austral plan was implemented by former President Raul Alfonsin in 1985, demonstrating credibility in the currency's new valuation. Investors and bankers were favorably impressed by the seriousness of the Peronist leader's austerity plan, which prompted the Buenos Aires stock exchange to rise 6.5% in a single day and sent monthly interest rates down 44 points, to 10%.

But the government's new pricing policy got off to a chaotic start. While the plan calls for prices to be rolled back to July 3 levels, prices in many stores kept on rising. The announced end of government subsidies for gasoline pushed prices up 670%, to the equivalent of $1.60 per gal. In anticipation of a 350% rise in subway and train fares, commuters flocked to stations to stock up on tokens.

Most foreign bankers have greeted Menem's plan with hedged optimism. But since Argentina has failed to keep up its payments to the International Monetary Fund and the World Bank, neither agency is eager to issue fresh credits without some proof of economic progress. "What's announced on paper can be very different from the results," said a U.S. credit analyst.

To stem the government's deficit spending, which reached $9.7 billion last year, Menem plans to increase revenues by simplifying the tax-collection system and increasing levies on exported goods. But most economists believe that Menem's most important task will be to privatize Argentina's inefficient state-owned monopolies, which are losing $4 billion annually. Menem may get the power to do so if the Argentine Congress approves a new emergency law that would give him almost unlimited control over the nationalized companies. But Menem has so far offered no details about his privatization drive. Those particulars are not likely to come soon. On Friday, only six days after joining Menem's Cabinet, Economic Minister Miguel Roig died of a heart attack. His replacement, businessman Nestor Rapanelli, will be the fourth Economic Minister since March 31, when Juan Sourrouille resigned because of his inability to stabilize the economy.

With reporting by Laura Lopez/Buenos Aires