With the confrontation over the Falklands running through a third week, Argentina's economic staying power during a prolonged crisis has become a primary concern of military and political leaders here.
The economy, already mired in one of its most severe crises when the invasion of the islands was launched April 2, is now suffering further under West European economic sanctions and a massive flight of capital from local banks--accompanied by collapse of savings and loan institutions.
The effects of Argentina's confrontation with Britain have already crippled the ambitious effort by the four-month-old government of Gen. Leopoldo Galtieri to bring down the world's highest inflation of over 140 percent annually with tough conservative measures.
Now, with interest rates soaring as high as 200 percent, unemployment at record levels, and industrial production plummeting, financial analysts are questioning whether Argentina can much longer afford to spend an estimated $500,000 a day on fortifying and supplying the islands and its coastal bases--much less endure a blockade or a war.
"The Argentine industrial sector is working at 40 percent" of capacity, said the Buenos Aires daily Clarin in an editorial, "and this is hardly compatible with an increasing conflict."
The Buenos Aires government has been forced to take a series of emergency measures so far to prevent the virtual bankruptcy of its Central Bank. Sale by banks of foreign currencies has been prohibited to save shrinking reserves for necessary foreign payments and possible new military outlays.
Many foreign debts are being settled with government-issued bonds rather than hard currency. Although the bonds are willingly accepted by foreign creditors, they represent "a real mortgage on the future of the economy when this is all over," said one analyst.
The crumbling economic structure also poses a potentially critical choice for international banks, similar to that faced in Poland earlier this year. Argentina is one of the world's largest debtors, owing $34.5 billion--or $8 billion more than Poland--to international organizations like the World Bank as well as governments and private banks across the Western world.
Britain, which normally would be the source of 60 percent of Argentina's new loans, has frozen Argentine assets and requested that European and American banks refuse to help Galtieri's government raise the more than $7 billion it needs to make loan payments this year.
So far, international banks, including the U.S. giants to which Argentina owes some $9 billion, have agreed to extend credit for short-term debts. But financial sources here say that if banks go along with the British government's request, Argentina could eventually be forced into default--a prospect as frightening for foreign bankers as for the Argentine government.
Even if its loan obligations do not become critical, financial analysts here say the economic crisis is likely to become a strong motive for the military government to end the confrontation--even if that means making concessions over the future of the disputed islands.
The government is also under strong pressure from political and labor leaders to abandon such measures as a freeze of state salaries and reduced controls over interest rates. In recent days, political leaders have begun calling for an "emergency" economic plan to reverse current policies. They had already been the basis of a large antigovernment movement this year that led to violent demonstrations days before the Falklands invasion.
Unless opposition demands for new government interest subsidies, wage increases, and incentives for lagging industry are met, labor and political leaders are now saying they may reopen the antigovernment campaigns that were reaching a peak in late March.
So far, Galtieri and Economy Minister Roberto Alemann have resisted the calls for change and maintained that the confrontation with Britain will not be unacceptably costly, despite the boycott on Argentine imports by the 10-member European Community and several Commonwealth nations.
Government officials and private economic analysts here say the economic boycott, though covering over 20 percent of Argentina's nearly $9 billion in annual exports, will not greatly hurt the economy unless the crisis extends over several months.
Argentina's largest current trading partner is the Soviet Union, which last year bought 77 percent of Argentina's primary export, grain. With its trade ties to the Soviets secure, analysts here say, only the meat-packing and fruit industries are likely to be affected by the economic sanctions.
The real damage so far has been the internal financial hemorrhaging, not foreign sanctions, analysts say. As panicked consumers have lined up to withdraw their funds, many foreign and domestic banks have lost 20 to 25 percent of their available funds, according to banking sources here.