Thursday, December 01, 2005

Argentine Inflation Raises Pressure on Kirchner

By: Michael Casey
November 28, 2005
Dow Jones Newswires

As a result of a recent rise in inflation rates in Argentina, several businesses are charging President Kirchner with engaging in anti-business policy. The Argentinean government won praise for a three-year upswing following their major economic crisis in 2002; however, in recent months, inflation hit record highs, reaching 12% (the second highest in Latin America, following Venezuela).

Outside investment companies suggest that Argentina tighten their monetary policies in order to lower inflation and raise exchange rates. Instead, Argentina launched several economic strategies which harmed several sectors of the business community and labor market. In an effort to curb inflation, there was an increase in export taxes, change in wage-price policy, and threats made to business cartels that result in economic inefficiency and harm the market.

Last week, economy minister, Roberto Lavagna, accused delegates of a construction-industry conference of collusive business practices. This accusation furthered the tension between Mr. Lavagna (who is generally more respected in the business community than Mr. Kirchner) and planning minister, Julio de Vido.

There are rumors that Mr. Lavagna is likely to distance himself from these monetary policies, and perhaps resign from his post as economy minister. This caused fear among economists and currency traders, who began frantically selling their pesos last week.

1) Will Mr. Lavagna, remain in his post as economy minister? If not, what effect will that have on the value of the peso? What effect will that have on the Argentine economy in general?
2) If Mr. Lavagna were removed from office, what effect would that have on the upcoming financial negotiations between Argentina and the IMF (International Monetary Fund)?

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