Argentina’s Senate OKs key austerity bill

BUENOS AIRES, Argentina, Reuters

Argentina’s opposition-dominated Senate approved early on Monday an austerity bill aimed at averting default on the economically stricken country’s US$128 billion public debt.

Senators, who debated for around eight hours, passed all the key clauses of the government bill to end deficit spending for the rest of the year, including controversial state salary and pension cuts of up to 13 percent.

“Approved, it becomes law and goes to the Executive” said Mario Losada, Senate president, after the debate into predawn hours during which uniformed waiters continually came in and out of the chamber with trays of steaming espresso coffee.

The stalled and once-postponed debate transfixed investors and traders amid fears that a financial meltdown in Argentina, Latin America’s third largest economy and biggest sovereign debt borrower, could spill over into the global economy.

President Fernando de la Rua’s center-left government has pressed for the “zero deficit” austerity plan to calm investors’ fears of a default by making sweeping public spending cuts and spending only what it earns in tax revenues.

But the bill had been stuck in the Senate since Wednesday, amid intense talks between the government and opposition Peronists, who agreed with the aim of ending deficit spending but were uneasy at supporting drastic public sector cuts.

An exhausted and pallid Cabinet Chief Chrystian Colombo, his necktie undone, watched the start of the debate along with other top government officials from a gallery — one sign of how much the government, and much of the country, believed was at stake with the bill.

“Argentina is near, today, to this hell (of debt default). There is still time to avoid it,” said a front-page editorial in leading La Nacion newspaper on Sunday, echoing many media comments on the eve of the debate.

The Peronists voted against the bill but only sent enough Senators to give the bill a quorum, thus handing a majority to the government ruling Alliance coalition.

“Our job is not to put obstacles in the way of a legitimately-elected government,” said Jose Luis Gioja, head of the Peronist bloc in the Senate.

If the Senate had insisted on changes in the bill’s details, it would have had to return to the lower house for another final vote, a move also likely to have hit markets which have punished Argentine bonds and stocks this month.

While De la Rua signed a presidential decree authorizing the cuts, he asked Congress to pass a parallel law making the cuts to fend off legal suits against the bill.

One judge has already suspended the decree cutting state salaries but the Senate vote should make that ruling invalid.

The lower house, dominated by the ruling Alliance government coalition, passed the bill last week but even some leftist members of De la Rua’s coalition were reluctant to approve it.

A further delay in the Senate would have shaken world markets that are worried Argentina’s financial troubles could spark the kind of regional spillover seen after Mexico’s 1995 Tequila crisis.

Now Argentina has done what the markets wanted, the government will be waiting to see how they react on Monday after a month of punishing stocks and bonds, effectively drying out international credit for the government. “The zero-deficit bill, if approved by the Senate, would represent a strong statement of the political establishment’s willingness to pay, and a powerful mechanism, if properly implemented, for freeing up financing for the private sector. Lower public-sector spending and deficits are a critical ingredient in a successful stabilization and recovery of the Argentine economy at this juncture,” Goldman Sachs said in a research note before the vote.