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Argentine crisis sparks panic
"WE ARE approaching a riot point in markets," said the head of research for the State Street financial group at the end of last week.
"This is the most nervous time in the emerging markets since Russia's default in 1998," said the head of research at the Credit Suisse First Boston bank .
What was worrying them was the sudden outbreak of a new financial crisis centred upon Argentina, prompted by fears that the country's government may be incapable of continuing to pay interest on its foreign debt.
The resulting panic soon spread to other countries. Turkey was the first to suffer, and then Brazil. The Financial Times reported, "Now the contagion is spreading in Latin America, Eastern Europe and Asia."
Argentina and Turkey were among the first countries to be hit earlier in the year by the new economic crisis that has been developing in the US.
Governments in both countries reacted by bowing down to demands from the International Monetary Fund (IMF) to cut back on social spending and to try to force down wages.
But this was not enough to prevent renewed crisis last week, and renewed pressure from the IMF for more cutbacks.
What worries bodies like the IMF-and the G8 leaders meeting in Genoa this weekend-is not the hardship hitting the people of such countries. It is that Western banks will not get the interest payments they are expecting, and that this will in turn make the crisis afflicting US big business worse.
The power to derail attacks
THE influential Forbes magazine in the US points out that "the IMF is responsible for the Argentine crisis. It made Argentina put up taxes in 1995, preventing the economy from growing and paying off its foreign debt."
The Argentine government's response to the crisis was to announce last week a savage attack on public employees and pensioners.
Their payments for this month have been cut by 8 to 10 percent, and the cuts could reach 15 percent in August. On top of that there will be 35,000 sackings in a country where unemployment is already around 15 percent.
One union leader spoke of "the biggest attack on people" since the military coup which established a bloody dictatorship in 1976. Public employees reacted by holding workplace meetings at which there were calls for demonstrations and strikes.
The national public employees' unions called for a one-day strike on Wednesday of this week.
A wave of such actions warded off the last government attacks back in March. Strikes and occupations by teachers and students forced the government to abandon attacks on the education system.
President De la Rua only resolved the resulting crisis by appointing as finance minister Domingo Cavallo-a key figure in the previous government.
Effectively the two mainstream parties formed a coalition in order to keep big business and the IMF happy while making concessions to bring the protests to an end.
Much of the financial press internationally talked of Cavallo as a "miracle worker", and trade union leaders told their members the crisis was over. Now it has broken out again, with an even greater impact.
Argentina's workers suffered enormous defeats in the mid-1970s. The resulting demoralisation continued to have its effects even after the dictatorship fell in 1983.
Right through into the 1990s there was often a sense of helplessness in face of the attacks of successive governments.
That feeling was encouraged by the leaders of very highly bureaucratised unions. Over the last 18 months the mood has changed. Four general strikes have involved blockading highways and mass picketing by both employed and unemployed workers. The union leaders still see one-day strikes as simply a bargaining counter in talks with the government. But a new militancy has been erupting from below. And that could derail the plans of the government and the IMF.