ECONOMY-ARGENTINA: Sigh of Relief – IMF to Send Negotiating Team

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Jun 6 2002 (IPS) - The International Monetary Fund (IMF) announced Thursday that it will send an advance negotiating team to Argentina to discuss the release of a loan to prevent the country’s profound economic crisis from spiralling even deeper.

Argentina has met enough of the IMF requirements to launch negotiations for disbursement of assistance, IMF spokesman Thomas Dawson told a Washington press conference Thursday.

The multilateral credit organisations will send a negotiating team to Argentina some time next week, Dawson said.

Eduardo Amadeo, Argentine government spokesman, commented that “the worst is over,” in regards to the crisis, and that the Eduardo Duhalde administration is “very pleased that definitive negotiations with the IMF on economic issues are finally getting started.”

The current crisis exploded in December in the context of a profound four-year recession. Unemployment now surpasses 23 percent and over half the country’s population of 37 million lives in poverty, with several million falling below the poverty line just in the last few months.

Dawson stated that the talks must include clear fiscal goals and “a monetary anchor” to prevent runaway inflation from occurring. His mention of a possible fixed exchange rate stands in contrast to the open currency market the IMF had repeatedly insisted upon.

President Duhalde devalued the national currency, the peso, in January, after it had been pegged at one-to-one parity to the dollar for 11 years. The government then established the price of the dollar for foreign trade at 1.4 pesos for a six-month period.

But less than two months later, the authorities heeded the IMF’s insistence and lifted the exchange restrictions. Now, the dollar fetches 3.7 pesos on the open market.

Argentina’s monetary reserves, which totalled 35 billion dollars in late 1999, plummeted to 15 billion dollars by the end of 2001, and stand at about 10 billion today, a consequence of the banking crisis, the run on accounts and the heavy demand for cash.

The Central Bank is now considering the possibility of selling dollars only on the wholesale market, not the retail market, in what would be a bid to protect reserves that could cause further currency devaluation.

Just hours before Dawson’s announcement, several government officials had expressed concern because, even after Argentina met all the requirements outlined by the IMF, the loan agreement continued to be delayed. Some even spoke of a possible “conspiracy” within the organisation against Argentina.

Argentina’s ambassador to the United States, Diego Guelar, had said earlier Thursday that his country had “finished its homework” and had done “more than can be expected.”

Alfredo Atansof, chief of the Duhalde administration’s Cabinet, said that the IMF should provide assistance “more quickly” if it wanted the government to act with greater speed.

IMF Managing Director Horst Koehler had expressed irritation with the slow pace of the Argentine government’s actions towards meeting the conditions the organisation had stipulated. However, Koehler also mentioned the need to “anchor” the currency to prevent a jump in inflation.

Thursday’s announcement represents a concrete step towards a loan agreement. The IMF chief had hinted Tuesday that the organisation might send an advance team next week to lay the groundwork for a delegation with the authority to finalise the accord.

Economy Minister Roberto Lavagna said he expects only to obtain a disbursement of 9.0 billion dollars, the sum the government needs to make payments on debt coming due this year so that Argentina does not default on debt held directly with multilateral credit institutions.

So far, Argentina has halted payment on debt to private creditors. Renegotiating those commitments requires reaching an agreement with the IMF first.

The agreement, even if it does not represent fresh funds, would open the door for loans from the World Bank and from other governments aimed at reactivating the economy.

The Duhalde administration had expected that once the IMF’s demands were met, the decision to send a negotiating team would be automatic.

With that in mind, the government pressed for congressional approval of a new bankruptcy law, the repeal of the law on “economic subversion” and the signing of agreements with the provincial governments to sharply reduce fiscal deficits, conditions the IMF set for initiating loan negotiations.

But once those requirements were met, IMF officials questioned the decree that offered savers options for recovering their bank deposits that had been frozen since December.

The government of then-president Fernando de la Rúa imposed sharp restrictions on withdrawals, known as the “corralito”, or little fence, to prevent a run on the banks.

The latest proposal would allow holders of fixed-term accounts to exchange their savings for 10-year bonds guaranteed by the state, or wait a shorter period for the public or private banks to return their deposits in the original currency in cash, in which case the banks themselves would be the guarantors.

Some members of the IMF leadership and Central Bank authorities say this decree, drawn up by the Economy Ministry, would cause banks to collapse, a loss of reserves, dollar flight, and subsequent inflation.

But Minister Lavagna is convinced that the voluntary deposits- for-bonds swap is the only alternative.

Lavagna had appeared to be confident in recent days about the chances of reaching an agreement with the IMF.

In his opinion, there are those within the IMF who are objecting to the bond swap decree in order to delay a financial accord, and others who are resolved to support Argentina by offering immediate negotiations.

On Wednesday, Lavagna said optimistically before TV cameras that there was “good reason to believe an accord will be reached” and that a negotiating team would arrive next week.

“The countries that control the IMF are of the position that we must advance, and therefore a mission will arrive,” said the minister. But he warned also that if the talks did not produce an agreement, “the situation will be very serious.”