A report yesterday on the Argentine economy misstated the current official exchange rate. Eighty austral cents are the equivalent of a dollar.
Argentines have rallied behind the tough austerity measures announced two weeks ago by President Raul Alfonsin, whose once-beleaguered 18-month-old democratic government now appears to be riding high on a wave of popular support and investor confidence.
Contrary to official fears, the dramatic measures announced during the past two weeks have neither caused a run on local banks nor sparked an explosion of popular protest. Instead, Argentina's stock market surged, and a local polling company showed 80 percent of the populace in support of the moves.
"I think people had become fatalistic about inflation, thinking that nothing could be done," said Economy Undersecretary Adolfo Canitrot. "They heard the president and found a logical, well-designed program, with a chance to combat it."
The austerity package, which includes wage and price controls, bringing money growth to a grinding halt and a change in the national currency, was announced June 14 by Alfonsin in what local observers called his most important message to the country since taking office.
In the nationally televised address, Alfonsin said the failure of the "battle plan" for a "war economy" that he had announced six weeks earlier would plunge the incipient democracy into economic chaos and social disintegration.
The powerful rhetoric appeared to be matched by the seriousness of local events. The first two weeks of June had provided an unremittingly bleak panorama for officials here, as inflation soared above 1,000 percent annually, the country's powerful labor unions threatened a series of savage strike actions and the price of the black-market dollar -- a faithful guide to investor worries -- soared.
"Alfonsin has staked just about everything on one throw of the dice , and this reveals the statesmanlike courage the country has been waiting for," said Raul Prebisch, a respected economist.
Officials here say Alfonsin decided to move to the "shock" program in early March, when it became clear that a previous policy of small devaluations was eroding what little confidence there was in the Argentine peso and that monthly cost-of-living adjustments and high interest rates were adding to the inflationary spiral.
Alfonsin reportedly told U.S. officials about his plans during a state visit that month to Washington, taking action only after an agreement was signed with the International Monetary Fund and following an 18 percent devaluation.
A key to the inflation-busting program, officials say, was the inauguration of the austral to replace the battered peso. Under the new system, one austral is worth 1,000 pesos, and eight austral cents are the equivalent of a dollar.
The new currency was described by independent economist Roberto Frenkel, one of the architects of the austerity package, as "a psychological move aimed at giving the impression we are starting anew." The measures appear to be having some effect. The prices of some goods have fallen for the first time in years, while the black-market rate for dollars collapsed to a level at parity with the official rate. At the same time, investor confidence appears to have rallied.
A survey by the Burke market research firm released earlier this month showed that manufacturers and bankers here overwhelmingly supported the economic plan, with 80 percent of the bankers queried saying they believed inflation will fall "dramatically" within the next few months.
The austerity program also has proved to be a double-edged weapon politically. Opposition parties, which appeared to be ready to denounce the plan vociferously when it was announced, modified their stance when the depth of popular support for the government's action, particularly among the broad middle class, became apparent. Similarly, the powerful, Peronist-controlled General Confederation of Labor found itself clambering toward moderation following the groundswell of support for the government.
The unexpectedly favorable response, however, has caused officials to warn against excessive optimism, saying that the wage-price controls, which are expected to remain in effect for only two or three months, would be complemented by a series of tough measures later on. In particular, they say a tight lid will be kept on public sector spending, despite pressures from unions and the fact that parliamentary by-elections are scheduled for November.
Officials have pointed out that Argentina, saddled with a $48 billion foreign debt, will need to undergo further structural changes in the economy to recover fully.
Some observers question whether the measures taken so far are enough to shore up the sagging economy. Some analysts say they believe the austral remains overvalued against the dollar, while others question whether the recent rate hikes by Argentina's huge public utilities sector will be enough to allow the Central Bank to keep from printing more money.