ECONOMY-ARGENTINA: Light at End of Tunnel Fades as IMF Delays Aid

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Aug 30 2002 (IPS) - The International Monetary Fund’s decision to put off the aid agreement requested by Argentina is feeding pessimism about the future of this country, which is deep in depression, may default on debt to multilateral creditors and is experiencing an unprecedented political crisis.

Economists, politicians and business leaders seem to agree that this latest postponement, which IMF director of external affairs Thomas Dawson confirmed Thursday, only exacerbates the very problems that stand in the way of reaching an agreement.

Alfredo Atanasof, spokesman for the Eduardo Duhalde administration, refuted Friday that the negotiations with the IMF have been broken off.

“That is totally and absolutely inaccurate,” said Atanasof, citing as evidence that “the IMF will send a technical mission next week to work with the Ministry of Economy.”

Argentina’s gross domestic product has been on the decline for the last three years, and is predicted to diminish 12 percent this year.

Buenos Aires defaulted on its foreign debt to private creditors last December, and since then has been negotiating, unsuccessfully, with the IMF for at least an extension on its payment deadlines to multilateral credit institutions.

Some experts attribute the IMF’s reticence to sign an aid agreement to the fact that the Duhalde administration lacks support to ensure follow-through on a medium-term development plan that would allow the country to generate the funds to make debt payments while emerging from recession.

Others believe the convergence of negative economic, financial, social and political factors has created a scenario that is so complex that neither the government nor the international credit organisations, including the IMF, have any idea of how to overcome the Argentine crisis.

Since Duhalde was named to the presidency by Congress on Jan 1 (replacing a series of short-term presidents after Fernando de la Rúa resigned in December 2001), the IMF’s formula stipulated for an agreement has included the creation or modification of a number of laws, spending cuts in the provinces, and fiscal balance.

The government has gone along complying with the terms, often with great difficulty, but new IMF requirements keep emerging.

In the last two months, a brief economic recovery, in addition to relative currency and price stability, have generated some optimism. The IMF sent to Argentina a commission of foreign central bank presidents of Europe and Canada who gave their stamp of approval to the government’s emergency economic plan.

And the visit three weeks ago by U.S. Treasury Secretary Paul O’Neill also fuelled confidence, even though it did not produce for Argentina the immediate financial support the official announced for Brazil and Uruguay during his tour through South America’s Southern Cone.

But the panorama has become slightly more complicated since then and the possibility of an IMF agreement grows more distant.

Pierre Duquesne, the IMF director for France, told his country’s government that “the United States does not know how to resolve the Argentine case,” the Buenos Aires daily Clarín reported Friday.

Several Argentine economists share that opinion, saying neither Washington nor the IMF has a prescription for the crisis.

Argentina’s assistant foreign minister, Martín Redrado, stated Friday that Argentina as at the core of the internal IMF debate about what the institution’s role should be in confronting the crises of emerging economies.

“The IMF is transforming from lender of last recourse into a judge in a competition,” commented Redrado.

Visiting Buenos Aires, Joseph Stiglitz, Nobel laureate in Economics and former chief economist at the World Bank, said he believes the IMF officials are using the Argentine crisis to teach other debtor nations a lesson, that if they default on their debts, “the punishment will be very stiff”.

Stiglitz, a critic of the strict economic measures the IMF imposes for countries in crisis, predicted that Argentina would not receive fresh funds from multilateral credit institutions, nor from the private sector, and would have to negotiate a way to make payment on its debt.

Jump-starting the Argentine economy will depend on what happens here, not in Washington, commented the economist. The Duhalde government should concentrate on promoting a developing policy in order to negotiate with the international creditors from a position of strength, recommended Stiglitz.

Economics professor Pierre Salama, from the University of Paris XIII, said in the Argentine capital, “There is no need to break ties with the IMF.” Argentina should “argue and argue so that the IMF changes its position, because its formulas have so far only deepened the recession.”

For Rodolfo Terragno, a presidential hopeful of the centrist Radical Civic Union party, “negotiation is not possible with the IMF” if the Duhalde government cannot pay its debt, does not know when it will pay, and does not have a fiscal or development plan, his spokesman told IPS.

Terragno, currently serving as a senator, believes it is necessary to put forth a three-year development plan and negotiate a restructuring of the foreign debt with private creditors and international institutional lenders alike.

In September, Argentina must face some 3.0 billion dollars in debt service that comes due to the IMF, World Bank and Inter- American Development Bank (IDB). The country has no other means to pay than to use its treasury reserves, which have plummeted from 15 billion to nine billion dollars in the last eight months.

Given the difficulties in obtaining fresh funds elsewhere, Economy Minister Roberto Lavagna tried to negotiate a deal with the IMF to extend the payment deadlines for this year and next in order to clear the way for the next administration, which is to take office in May.

Nevertheless, IMF spokesman Dawson said Thursday that the Argentine situation is “very, very difficult,” as there is no political consensus about how to advance. He said there would be no IMF response, for now, to the draft agreement Lavagna sent three weeks ago.

Lavagna had won the support of IMF first deputy managing director Anne Krueger to put off payment deadlines with that institution for one year, but payments due to the IDB and World Bank were only postponed 30 days.

If the Duhalde administration does not achieve an agreement, and refuses to dip into its reserves, thus declaring default, it would by saying good-bye to the possibility of obtaining loans to finance production or exports for a long time to come.

With constant changes in the timeline that have the presidential elections slated for Mar 30, the disputes within the ruling Justicialista (Peronist) Party and the lack of a leader with broad political support cast yet another shadow over the Argentine scenario.