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Why Argentines Cheer Man Who Hikes Taxes

DESPITE harsh economic policies that have wreaked havoc on the lives of ordinary Argentines, the controversial economic minister Domingo Cavallo enjoys a surprising 90 percent approval rating.

According to recent polls, the Harvard-trained economist, whose program began in 1991 with a plan that pegged the Argentine peso to the US dollar, has even larger support than President Carlos Saul Menem, who won the May presidential elections with almost 50 percent of the vote.

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Part of the reason for Mr. Cavallo's popularity is his clash last month with President Menem and his Cabinet over alleged corruption in the privatization of state enterprises.

In late August, Cavallo denounced the existence of ''mafias,'' supposedly protected ''from above.'' These groups, he said, are trying to gain control of the postal service, the country's largest airport, customs, and other state-owned businesses. All are being privatized.

A survey by the consulting firm Hugo Haime in Buenos Aires showed that 90 percent of the people believed Cavallo's accusations.

Although Menem publicly supports Cavallo, the minister's outspoken attitude and reports of their clashes have caused a steep drop in the Buenos Aires Stock Exchange. It has also caused a flight of foreign capital, prompted by fears of Cavallo's resignation.

Early in August, the minister said the country had a record 18.6 percent unemployment rate. Private analysts, however, estimate that between unemployment and underemployment, Argentina's jobless rate may be closer to 30 percent.

Most analysts blame Cavallo's program - higher taxes, sweeping privatization of inefficient state enterprises, and a large reduction of the country's bloated bureaucracy - for the country's unprecedented rate of unemployment and a deep recession.

During a television program appearance in July, Cavallo defended his economic policies, but admitted that the economic transformation of Argentina had been made ''at a very high social cost.''

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In an effort to counter the social effects of Cavallo's policies, Menem announced that the government will promote new public works, mostly to propel the dormant construction industry.

In the influential conservative daily La Nacion, analyst Eduard Bonelli wrote recently that Cavallo had weathered well the political storm caused by his attacks on the inner circle of the president.

A few days after those attacks, the minister announced a relaxation of credit policies to promote the country's economic recovery. With that, La Nacion said, Cavallo not only earned renewed support from the most influential Argentine businessmen, but also from the International Monetary Fund.

Cavallo is expected to capitalize on that support to boost his hinted-at presidential bid in 1999. Menem, who had the Constitution reformed in 1994 to allow him to run for reelection, already has made it clear that he will not run.

If Cavallo's economic policies continue to maintain a relative stability in Argentina, the minister could become a major contender for Menem's post.

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