A new agreement with the International Monetary Fund has reinforced President Raul Alfonsin's move toward austerity policies, but business and financial experts here question whether his government can act quickly and decisively enough to stabilize Argentina's turbulent economy.
"I am disposed to pay all of the political price that has to be paid" for austerity, Alfonsin declared to reporters two weeks ago.
But bankers, diplomats and politicians here, as well as IMF officials in Washington, remain unconvinced that the government will carry out its program. Despite some initial measures, they say, Alfonsin has yet to begin in earnest on the cuts in state spending and investment that will be necessary. And he has allowed the initial austerity moves to be diluted.
"Alfonsin has turned around," said Enrique Szewach, chief of the respected private economic institute FIEL. "But what is clear for Alfonsin is not clear for all of the government, or all of the party. And that makes good intentions hard to carry through."
The preliminary accord with the IMF on an economic plan, announced here yesterday, should allow Argentina to avoid a crisis in its relations with commercial banks and complete arrangements for receiving new loans and rescheduling payments on its $48 billion foreign debt, government officials said.
At the same time, the IMF program formally commits Alfonsin's government to strong measures of austerity to cure an economy suffering from both industrial recession and an annual inflation rate of more than 1,000 percent.
Tight monetary controls, spending cuts, checks on workers' salaries and hikes in interest rates, public tariffs and taxes are outlined in the plan to bring down inflation from a monthly rate of 25 percent to 8 percent in the next 10 months, according to reports here.
Alfonsin, who strongly resisted such measures in negotiations with the IMF a year ago, has repeatedly announced his intention to shift course in the last two months and warned Argentines of hard times ahead.
But internal opposition to any economic belt-tightening has significantly increased in the three months since Argentina's last program with the IMF was suspended, these observers say. Unions organized their first successful national strike last month on an anti-IMF platform, and important sectors of Alfonsin's own party have publicly challenged his change of course.
The skepticism among IMF officials has been reflected in the agency's insistence that Argentina implement many of the planned budget cuts and price hikes before its new program wins final approval from the agency's board, informed sources here said.
Within Argentina, businesses have continued to withhold investments and savers have shaken the banking system with waves of withdrawals. Bankers, economists and diplomats cite lack of public confidence as the government's most serious economic problem.
"You reach a point where confidence becomes an economic condition by itself without which no technical adjustment will work," said Oscar Camillion, a former foreign minister. "And here the lack of confidence is really great."
The widespread doubts stem in part from the chaotic effects of Alfonsin's last effort to stabilize conditions under an IMF plan beginning last September.
After accepting an austerity program, government authorities tightly restricted monetary expansion and temporarily curtailed spending for three months in an effort to meet initial IMF performance guidelines.
The program at first appeared to win results as inflation dropped from a one-month high of 27 percent in September to 15 percent in November. However, Argentina still failed to meet its targets for reducing spending and the printing of new currency with the IMF, leading to the suspension of the program and a freeze on refinancing negotiations with banks in March.
Many of the cutbacks in government spending resulted from the postponement of fixed expenses and delayed payment of bills by agencies and state companies, economic experts here say. At the same time, increases in taxes and tariffs were offset by increased evasion by taxpayers and continued high inflation.
The result was a new explosion of government spending and the treasury's deficit in the first months of this year, culminating in a record deficit for the month of April, government figures show. Inflation once again soared and reached 29.5 percent for the month of April, the highest rate yet in Alfonsin's government.
Meanwhile, the new spending failed to stem a drop in industrial production and sales and a long-sagging rate of investment plummeted further.
Economists now predict that the overall economic product, after increasing in 1983 and 1984, will show a decline for the first six months of this year, returning Argentina to the explosive combination of high inflation and recession it suffered during the early 1980s.
"The kind of adjustment carried out by the government is not adequate because it's very unstable," said Szewach. "There is a freeze of investments, a drop in salaries, and big increases in taxes and interest rates, but there is no real cut in spending. The result is that none of the measures can be sustained; after six months they blow up."
In late April, Alfonsin responded to the new crisis by telling demonstrators in front of the government palace that he was putting Argentina on a "war economy." Government ministers subsequently announced a new 12 percent cut in spending, increases in utility and tax rates, and a plan for the elimination of up to 30,000 state jobs. Monetary policy was again tightened and internal interest rates soared last month.
Nevertheless, several observers here said there have been clear signs of compromise in the first austerity measures. Although economic officials recommended a total freeze on state jobs, Alfonsin eventually yielded to internal government pressures and approved a modified plan allowing some hiring to continue.
Informed sources here also said the president resisted suggestions from his ministers that state workers' salaries, now adjusted monthly at 90 percent of the previous month's inflation, be further curtailed.
"I think Alfonsin very badly wants to stop inflation," said one source close to the government economic team. "However, each measure that you take has a lot of domestic political cost and in practice, the president finds that a lot of things that are proposed to him are politically unfeasible."