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Thursday, March 5, 2015
- The International Monetary Fund (IMF) has formulated such strict requirements for the Argentine government just to begin negotiating an emergency loan that it has fuelled unprecedented opposition in this South American country to any agreement with the multilateral institution.
In recent years, accords with the IMF marked a first step towards overcoming the country’s economic or financial woes. But this time, faced with an historic economic, social and political crisis, the institution’s reluctance to help is generating profound and widespread animosity towards it.
The IMF’s director of Special Operations, Anoop Singh, ends his mission to Argentina on Wednesday, his second such visit in less than a month. The presence of an IMF mission here has never before achieved such great political notoriety, agree political leaders, lawmakers, economists and journalists alike.
“It is like paying homage to a viceroy,” said opposition senator Rodolfo Terragno, of the Radical Civic Union party, in reference to Singh. The legislator added that the Eduardo Duhalde government is acting in the negotiations in a manner that is “not very honourable or beneficial.”
Economist Mercedes Marcó del Pont, of the Research Foundation for Economic Development (FIDE) – traditionally a supporter of IMF agreements -, says the aggressive stance of the institution and its level of interference in national policy is “unheard of”.
Most provincial governors reject the ever-stricter financial adjustments demanded by the multilateral organisation. The IMF “should go to hell,” says the particularly candid Alfredo Avelín, governor of San Juan.
“The only thing lacking is for us to pull down the Argentine flag and replace it with the IMF’s,” said Avelín.
During his second visit, Singh met with President Duhalde, government ministers, legislators, governors, leaders of the political opposition, unionists, and business and banking executives. The IMF official laid out – in writing – his final recommendations for what each one should do and even say.
One of the documents that Singh, an India national, drew up for the Argentine case states in its first lines that “a top government official should make an extensive declaration explaining the following pointsà”
And the IMF’s chief of Special Operations told a group of journalists gathered last week in an office of the Economy Ministry exactly what Argentina must due to avoid “a difficult future.”
The institution states that Argentina must dramatically reduce its fiscal deficit, restrict the emission of currency and eliminate the bonds that have been issued as tender in some provinces, which today represent more than a third of the circulation.
These conditions would allow Argentina – although official figures are not yet known – access to a disbursement of around 9.0 billion dollars that would then be used to cancel the interest on the country’s debt to multilateral credit organisations.
The IMF is also demanding the repeal of laws, such as legislation on bankruptcies, which allowed a temporary suspension of transactions due to the crisis, affecting the banks’ ability to recover their loans.
Another Argentine law the institution questions refers to economic subversion, which has served as the basis of the investigation of bank executives suspected of facilitating the illegal transfer of money out of the country.
The Duhalde administration appears willing to accept the IMF conditions to obtain a loan and thus achieve a break amid the national crisis, but the discourse championing new adjustments for no longer finds as many supporters as it did even two years ago.
The recession that has dragged down the economy since late 1998 intensified in January, and official figures put unemployment at more than 23 percent. Predictions from private economic think-tanks coincide in that the gross domestic product (GDP) this year will plummet 10 percent.
Seven out of 10 Argentines consulted by the Catterberg and Associates polling firm believe that an agreement now with the IMF – the option in which the government is placing all its hopes – would only make the economic situation worse (40 percent) or would change nothing (32 percent).
Catterberg asked a sample of the Argentine population if they think “it is necessary to carry out policy independently of what the IMF recommends” or “follow the IMF conditions in order to obtain assistance.” Of those polled, 63 percent were inclined to the first option, 28 percent to the second, while 11 percent said they did not know.
Meanwhile, the portion of those interviewed by pollster Graciela Rohmer that think the country should develop its own economic programme, even if its runs counter to IMF recommendations, jumped from 44 percent in 1999 to 75 percent in 2002.
FIDE economist Marcó del Pont, an official of the Ministry of Production, named soon after Duhalde took office Jan 1, resigned from that post two weeks ago due to discrepancies with the official line that Argentina must accept the IMF financial adjustment recipe in spite of the need to reactivate the economy.
She stated this week that if the country follows the path outlined by the IMF, the recession will deepen in the next few months and it will be even more difficult to comply with the fiscal objectives, given the subsequent decline in tax revenues.
Marcó del Pont also warned that the ongoing crisis could also drag down the government.
Congress designated Duhalde president to complete the term of Fernando de la Rúa, who resigned Dec 20 amidst social, political and economic upheaval.
Shortly before resigning, then-minister of Economy, Domingo Cavallo, ordered restrictions on bank account withdrawals. Initially, the measure was to last three months, but the limits then were tightened, even throughout the losses that savers suffered due to the depreciation of the Argentine peso in January.
Adolfo Rodríguez Saá, who briefly succeeded De la Rúa in the presidency, announced a halt to public debt payments and resigned two weeks later due to lack of support for his proposals.
Duhalde then took the reins, and among his first acts was to dismantle the “convertibility” regime that had pegged the peso on par to the dollar for the last 11 years. He also devalued the currency and implemented a series of export taxes.
The IMF had demanded that Cavallo take such measures, but he refused. Duhalde believed that by complying with those requirements the international finance institution would be willing to provide assistance, just as it had for other emerging economies that had faced crises in the 1990s, like Mexico, Russia and Brazil.
But the IMF has since established new requirements, which continue to delay an agreement with Argentina.
Under pressure from the IMF, Duhalde shifted Argentina from a controlled to a free currency market, and the peso plummeted. The dollar – which was equal to the peso for more than a decade – now costs three pesos, exports are blocked due to lack of financing, and the economy is paralysed.
The social crisis, far from calming down, only became more profound with the devaluation, which caused an immediate spike in consumer prices. With salaries frozen, and even reduced, as a result of the crisis, inflation has become a new time bomb threatening the stability of the government.
In this context, Duhalde and Economy Minister Jorge Remes Lenicov have concentrated on achieving an agreement with the IMF that would allow Argentina to cancel payments on its public debt, free up funds for social programmes and, perhaps more importantly in their eyes, obtain a guarantee from the institution.
But the negotiations stretch on and there are increasingly more, like Marcó del Pont, who are calling for sidelining the IMF and, without breaking ties with the organisation, implementing a development programme that is decided at home.
“No objective data indicates that a new IMF agreement would pave the way to economic reactivation,” said the economist.
“In my opinion, Argentina should seriously consider an alternative programme without the help of the IMF,” she added.
Fellow economist Marcelo Lascano, of the University of Buenos Aires, said that Singh, who returns to Washington on Wednesday, acts “as a viceroy” because the Argentine government does not have an economic plan.
“The problem doesn’t lie with Singh, but with the Argentine leadership,” he said.