Argentina unveils economic contingency plan

BUENOS AIRES, Argentina (CNN) -- President Christina Fernandez de Kirchner announced Thursday a "contingency plan" to confront the problems affecting Argentina's economy, which has been rocked by the international financial crisis.

Fernandez said her goal was to increase domestic consumption -- in the face of a drop in demand for exports -- in order to sustain Argentina's economic growth and avoid a rise in unemployment.

"The restrictions come from outside the country, not from inside, and we are backing this contingency plan precisely because of those restrictions, because of those policies that are devastating the world as we know it," she said.

She said the government would set aside about $4 billion as an incentive to be used for consumption -- loans to buy household appliances and credits to maintain activity in the auto industry -- though she did not say where those funds would come from.

In addition, the central bank will offer financing at 11 percent to companies that promise not to lay off employees, the government announced.

One economist welcomed the moves.

"The measures tend, on the one hand, to reactivate the levels of consumption that have been beaten back, especially in the last month, particularly in durable goods, the auto industry and household appliances," economist Dante Sica said.

"Second is a program that tends, in its line of financing, to inject liquidity into the business sector, especially the industrial and farm sectors that are paying interest rates above 35 percent."

The government also announced a 5 percent decrease in withholding tax for the export of wheat and corn -- taxes that had stirred fierce debate in the country -- -and the launch of two plans, Wheat Plus and Corn Plus, which will result in another 1 percentage point drop in the withholding tax when production increases.

Representatives of the business sector applauded the announcements, saying they underscore the importance of restoring credit in the country and making efforts to keep people employed.

But the reaction of the rural sector was mixed, with the Farming Intercooperative Federation calling the measures good but insufficient and the Argentine Agrarian Federation saying they won't solve farmers' problems.

Ricardo Haussman, an economics professor at the Kennedy School of Government at Harvard University, predicted the economic crisis would cause much of Latin America to grapple with difficulties in the coming months.

"The effect is going to be big," he said. "2009 is going to be very difficult for Latin America, in part, because obviously there is a very important fall in the price of Latin American commodity exports and, in part, because the drop in industrial activity will affect the manufacturing sectors of Mexico and Central American, which are connected to the economic activity in the United States."

More importantly, he said, was the freezing of the international financial system and a general lack of access to financing.

"This translates into difficulties in maintaining lines of credit for export and difficulties for countries with external debt to find refinancing."

He called on the U.S. government, "which has access to financing that nobody else has," to use it to redirect resources so that Latin American countries can find financing.

Haussman, who is Venezuelan, said the situation in his home country was particularly fragile, "because the president has been spending thinking that the price of petroleum would be somewhere else."

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