Argentina's underestimated crisis

The Argentinean crisis did not appear out of the blue. It has been merrily gathering pace over the last few months and will not be banished overnight.

For one thing, the crisis is dangerous for Argentina itself: the fragile equilibrium in the center-left coalition government has been shattered and the economic data are so disastrous that improvements are bound to cost blood, sweat and tears in good measure.

The only person holding the fort at the moment appears to be the new economics minister, Ricardo Lopez Murphy -- as opposed to President Fernando de la Rua, a man widely regarded as incapable of reaching a decision quickly.

More worryingly, the Argentinean crisis also has an international dimension in that the highly-indebted state -- it owes almost US$150 billion -- is entirely dependent on the generosity of international finance institutions.

Although they pledged huge support totaling $40 billion at New Year, the situation on the international financial stage looked rosier then than it does now, and foot-and-mouth diseases had not yet reached Argentine farms. Now it has the country is threatened with losing the meat exports which are crucial to its survival.

Were Argentina to collapse, a prospect which can no longer be discounted, its neighbors -- in particular Brazil and Chile -- would suffer wide-ranging consequences. This follows because of the increased integration of the economies of the southern part of Latin America in the early 1990s and can only be avoided if the government and Peronist opposition in Buenos Aires agree to a stability pact containing fundamental structural reforms.

If this cannot be pulled off, the decades-long practice by practically all Argentinean governments of muddling through will only succeed in further destabilizing the country. There is much to suggest that a further descent into financial ignominy for what was not so long ago the world's fifth-largest country looks unstoppable.

-- Die Welt, Germany