MercoPress. South Atlantic News Agency

Argentina blasts US and EU: only way out of crisis is expanding public spending

Feletti anticipates strong retraction in global demand

Argentina's Deputy Economy Minister Roberto Feletti criticized the fiscal austerity measures being implemented in Europe and the US, saying those policies will only hurt the global economy.

“We see that policies that aren't aimed at recovering demand have failed. The only way to get out of the crisis is for there to be an expansion in public spending aimed at recovering demand” Feletti said in a radio interview on Friday.

“You have [fiscal] adjustment proposals in the US and Europe that will no doubt cause a retraction in international demand,” he added.

Most major international stock indexes extended their declines Friday as investors fear that anemic economic growth and austerity measures in the debt-burdened Europe and US could trigger a new recession.

After its economy collapsed and the government defaulted on about 100 billion dollars in debt during a homegrown meltdown in 2001, Argentina has enjoyed years of breakneck economic growth thanks to strong international demand for its exports.

President Cristina Kirchner attributes Argentina's recent prosperity to her unorthodox policies of import substitution and income redistribution through taxation, spending and social inclusion.

The government says the economy is on track to expand more than 8% this year, after growing 9.2% in 2010.

Argentina continues to enjoy healthy trade surplus thanks to demand for its grains and manufactured goods in Asia and Brazil. Even so, the central bank sees the trade surplus shrinking to $8 billion this year.

Argentina's top trade partners, Brazil and China, together bought about 27% of its 40 billion dollars in exports during the first half of 2011, according to government data.

While other governments tighten their belts the administration of President Cristina Fernandez has poured money on infrastructure projects, public transportation and energy subsidies, and social programs.

Her ability to tap the central bank's reserves and tax revenue that soared 32% on the year in the first half have swelled the government's coffers.

But annual inflation that most economists say is entrenched above 20% could eventually derail the economy. The government’s statistics office Indec, heavily questioned consumer price index was up 9.7% on the year at the end of June.

Unions have won annual salary increases averaging over 30%, which is a boom for consumer spending and cheap imports but damaging to export-orientated firms.

Meanwhile, a measure of capital flight published by the Central Bank rose to 6.13 billion during the second quarter, from 3.68 billion in the previous quarter and 2.24 billion in the fourth quarter of 2010.

Feletti is known for having made some comments regarding the current ‘development’ model and the need to intensify it by having workers share companies profits and placing government representatives in major corporation boards, which have scared investors and intensified capital flight.