Argentine government admits economy hurt by default
Economy minister prepares measures to protect employment from economic contraction.

Argentina's recent showdown with creditors in U.S. courts will probably hurt the local economy, Economy Minister Axel Kicillof has said, in the first such admission from the government.

His comments on Wednesday came a week after the country defaulted on a $539 million interest payment on bonds, restructured from a 2001 default, on a total of $100 billion.

Kicillof said on Radio Del Plata, a local station on Wednesday: "It is a battle that of course will affect Argentina.

"I am not going to deny difficulties.”

The government said it could not pay the debt as a U.S. court was barring the distribution of funds to creditors who had accepted 30 cents on the dollar in bond swaps in 2005 and 2010.

The US court ordered the country to pay in full plaintiff creditors who had not restructured their bonds from the default at the same time.

'Brutal slowdown'

The government countered that the ruling would trigger more lawsuits with claims of at least $120 billion from the restructured bondholders, leaving the country mired in more debts and legal problems.

Kicillof then opted for a default saying, along with other officials, that the economic fallout would be minimal.

But the minister's comments on Wednesday contradicted the statement.

He said foreign trade would probably grow 2.1 percent this year, less than the 4 percent in 2013.

"There is a brutal slowdown” in trade, he said.

But he sought to ensure Argentines that the government would take steps to limit any fallout.

"Where there is a problem, there is going to be a government active in economic affairs, so that there is no loss in jobs,” he said.

'Pitch in' call

The government has been putting price controls on basic goods at pharmacies, supermarkets and other retail outlets to try to contain inflation, now estimated by by private economists to be 30 percent annually.

It launched a state mobile phone plan last week that it estimates will save consumers 22 percent compared to private plans.

Most economists, however, have warned the economy could contract by more than 2 percent this year because of the default, worse than the 1.5 percent previously expected.

They have also warned of faster inflation, higher interest rates, a weaker currency and rising unemployment.

Kicillof said that companies should pitch in to help ease any contraction in the economy.

"The government is going to do its part, and executives should do their part by taking risks, investing, helping and accompanying,” Kicillof said.

He said the government was willing to work closely with industrial leaders and was open for suggestions on what to do, adding that economic measures were to be "announced in the next few days”.

Last Modified: 2014-08-07 09:37:31
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