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Business

Aid Against Turmoil

More than half of the population is living below the poverty line. The spectre of extremism is emerging again. But a new loan worth 694 million dollars may yet pull Argentina back from the brink of chaos.

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Corruption has brought Argentina to its knees.

The plunge of Argentina's peso has raised the spectre of hyperinflation and bloody food riots. The country has been cut off from outside funds since it defaulted on 162 billion euro (141billion dollars) in loans in December.

The recent images of policemen firing rubber bullets from motorbikes to disperse protests that left 27 dead is the kind of anarchy and social implosion that Argentines now most fear.

On the streets of Buenos Aires, many people said their greatest nightmare was a return to an era of hyperinflation, like in 1989, when price rises reached 5,000 percent.

Calming fears of a return to anarchy is a new loan from the Inter-American Development Bank (IADB).

"Because of the precarious social conditions, we can no longer delay making all possible resources available to the population and in this way open spaces for relief and hope," said IADB President Enrique Iglesias in a statement.

The money is intended to rebuild the country's crippled social services.

New loans from the International Monetary Fund are not in sight.

Fat cats agree

Wall Street does not see economic recovery in Argentina taking root until a leader emerges with a popular mandate to end the corruption which thrives under a system of patronage for provincial governors.

Government jobs have to be slashed, budgets cut and tax collection enforced US investors and analysts say.

Officially, unemployment in Argentina is affecting about a quarter of the workforce and nearly half the population is regarded as below the poverty line.

"The only thing that's going to stop this is for them to come up with some announcements that are credible and get the IMF behind them instead of trying to put band-aids on every situation," said Doug Smith, an analyst for Wall Street think-tank IDEAglobal.

No end in sight

The populist leanings of Mr Duhalde's Peronist Party mean that cuts to public sector pay and pensions - widely regarded as essential - are nowhere to be seen.

The effects of his policies on the currency have been devastating.

The peso was devalued in January after a decade of being pegged at parity with the US dollar.

From a level of 1.40 to the dollar on its flotation, the peso-dollar rate has sunk to a low of around four.

Exchange controls were introduced earlier this week after the government blew nearly ten percent of its foreign currency reserves trying to defend the peso.

But analysts said the new controls would only further alienate the IMF, which has called on Argentina to stop artificially propping up the peso and make further spending cuts if it wants aid.

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