Argentina Announces $3.8 Billion in Stimulus

The New York Times
By ALEXEI BARRIONUEVO
Published: December 5, 2008
RIO DE JANEIRO — Less than a month after taking over billions of dollars in private pension funds, the Argentine government said it would use some of the nationalized assets to help farmers and industry weather the global economic downturn afflicting one of Latin America’s most vulnerable economies.
The government on Thursday announced a $3.8 billion stimulus package that will grant low-cost loans to farmers, automakers and other exporters, who have struggled as the slowing world economy has trimmed demand.
The move is the latest attempt by the government of President Cristina Fernández de Kirchner to restore flagging confidence in her handling of the economy.
Argentina has a history of creating its own economic crises, and Argentines are skeptical when its leaders try to blame others, as Mrs. Kirchner did again in a speech on Thursday.
“Perhaps we Argentines are going to have to suffer a part of this tragedy,” she said, addressing banking, automotive and industrial leaders.
Business leaders and analysts reacted cautiously to the new stimulus package, saying that it was a step in the right direction but that bolder moves would be needed to head off a major devaluation of currency or a default in the country, which economists have said could happen by 2010.
“These measures are really poorly designed and ineffectual,” said Daniel Kerner, an analyst with Eurasia Group, a risk consulting firm. “Unless you really solve the issue of lack of confidence in policy and in the government, almost nothing is going to be effective. This is like giving aspirin to a person that has cancer.”
Foreign investment has slowed severely, and Argentines continue to pull their money out of the banking system at a rapid clip, which has conjured memories of the country’s crippling 2001 loan default and 2002 currency devaluation. In October, $4 billion left the banking system, and Mr. Kerner said the total for 2008 would top $25 billion.
Economists have criticized Argentina for reacting more slowly than neighboring Chile and Brazil in trying to contain the fallout from the global economic crisis.
Argentina faces a more complex domestic political situation than its neighbors. A prolonged battle with farmers over proposed export taxes, which ended in defeat for Mrs. Kirchner in July, led to a sharp fall in her approval rating. Recent moves to nationalize Aerolíneas Argentinas and the pension funds have stoked concern both at home and among foreign investors that the government is desperate to avoid an economic crisis next year, when some $22 billion in loans and other payments will come due.
In recent days the government has announced a series of quick-fix measures, like raising gasoline prices and lowering subsidies on electricity usage, to save money. But also, last week the president sent a bill to Congress that would offer tax breaks to stimulate local investment and encourage companies to keep workers on the payroll. She also announced a $21 billion public works program, the details of which are still pending.
The Argentine economy grew by at least 8 percent a year from 2003 to 2007, but economists expect growth to fall to 7 percent this year and much lower next year.
Argentines have been reluctant to give Mrs. Kirchner credit for her efforts to steady the ship. Her approval rating has hovered around 30 percent. That contrasts with Luiz Inácio Lula da Silva, Brazil’s president, whose approval rating was at 70 percent according to a poll that was published this week in the newspaper Folha de São Paulo.
Mr. da Silva’s approval ratings remain high as Brazil struggles with credit concerns and layoffs at major companies. A slowdown in Brazil, Argentina’s biggest trading partner, would affect Argentina more than any other economy in the region, economists said.
Most of Argentina’s $3.8 billion in loans will come from state-run banks and from assets that the government pulled in from last month’s takeover of the country’s 10 largest private pension funds, Mrs. Kirchner said Thursday.