An International Monetary Fund team is forcing Draconian austerity policies on Argentina in exchange for more loans to the country. Experts warn the policies won't work.

• The IMF is insisting that the country's deficit not exceed $1 billion next year -- equal to about 0.3 percent of gross domestic product.

• It is also reportedly urging an increase in payroll taxes, even though they now are close to 40 percent and the country has an unemployment rate of nearly 20 percent.

• Critics say these IMF policies concentrate on short-term symptom cures, rather than key structural reforms -- such as labor reform, government reform and privatization.

Observers say the IMF is putting Argentina's new free-market-inclined finance minister, University of Chicago educated Roque Fernandez, on the road to tax increases -- rather than allowing him to design a long-term program combining structural reforms with realistic fiscal measures grounded in reduced expenditures and a more neutral tax regime.

Free market economists urge reforming Argentina's extremely rigid labor legislation.

• Collective bargaining procedures favor monopolistic behavior by unions and severely limit negotiations at the firm level.

• Labor taxes earmarked for social services provided by unions are a source of corruption.

• And a surrealistic system of severance payments burdens small and medium enterprises.

A whole array of taxes and regulations has slowed job creation and reduced the international competitiveness of Argentine exports.

• While the country is slowly deregulating the labor market, a number of studies suggest that comprehensive reform could quickly reduce unemployment at least 8 percent.

• One estimate says a reduction in labor costs of 10 percent through lower payroll taxes would generate an increase in employment of 5 percent.

Experts say that Argentina should follow the example of Chile, where free-market reforms have achieved 6 percent unemployment and nearly a 5 percent per year increase in real wages.

Source: Sebastian Edwards (University of California at Los Angeles), "More IMF Austerity Won't Cure What Ails Argentina," Wall Street Journal, August 30, 1996.