MercoPress. South Atlantic News Agency

Lavagna forecasts 7% Argentine economic expansion

Argentina's Economy minister Roberto Lavagna said the country was on its fourth year of economic expansion and forecasted a 6,5 to 7% growth in 2005.

"It's a path we still have to follow", added Mr. Lavagna during a television interview where he made it a point of emphasizing the current controversial Central Bank policy of supporting the United States dollar at a 2,88 Argentine pesos.

Mr. Lavagna argued that this exchange rate benefits not only exporters but "all the Argentine people", and in any case the only "possibly" overvalued currency in the region was the Brazilian Real.

"We believe that an overvalued currency is the worst mistake a country can make", said Mr. Lavagna who is involved in a controversy with the International Monetary Fund which is recommending the Argentine peso be allowed to float freely given the significant influx of capital into Argentina.

"We're in a process of productive expansion. More than ever we need an exchange rate that reflects the country's productivity and above recalls the negative impact that the over valuation of the Argentine peso in the nineties had for the economy".

Until December 2001 the Argentine peso was pegged and equivalent to one US dollar.

"The exchange rate by itself is not enough, but without it we can't have a sustainable social and economic development plan, so that's why it's also necessary", added the Argentine Economy minister.

To keep the US dollar in range of the 2,88 pesos benchmark rate the Argentine Central Bank has been buying hundreds of millions of dollars. A strong dollar promotes Argentine exports but at the same time stimulates inflation.

Further more IMF argues that a stronger peso will help improve Argentina's GDP/debt ratio, a crucial index in international monetary markets.

"We're working hard to make sure inflation does not reach two digits", admitted Mr. Lavagna. Inflation in the first seven months of 2005 totalled 7% when the overall target for the twelve months is 10,5%.

"The only countries with no inflation are those stagnant", he underlined adding that what matters is an overall increase in "production, productivity, the number of people with jobs and salaries".

Mr. Lavagna denied that the current Central Bank policy of purchasing dollars was causing inflation, since "we're absorbing the additional liquidity with bonds", but rather the significant improvement in consumers' purchasing power.

"The economy has been expanding at 9%, there are two and half million Argentines with jobs who are now in the market consuming, and this undoubtedly has had an impact", he argued.

Finally when asked if he was going to get involved in the current campaign for the mid term elections given "public opinion acknowledgement to his achievements as Economy minister", Mr. Lavagna said "no, not because I'm afraid of being caught in the middle of the debate but because the economy is a very delicate matter and I'm going to concentrate on that".