FINANCE-ARGENTINA: Government to Pay Off Debt with Credit Only

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Nov 16 2002 (IPS) - Argentina’s Economy Minister Roberto Lavagna denied Friday that his country suffers domestic financial problems, but clarified that no more reserves would be used in paying off foreign debt because doing so would only worsen the country’s financial vulnerability.

Just hours after his return from Washington, where he had been negotiating with the International Monetary Fund (IMF), Lavagna said the government had decided Thursday to “postpone” the 805-million dollar payment to the World Bank, but that Argentina will not fail to pay.

“This is absolutely not a default,” said the minister, explaining that default would only occur if the government does not pay within the next six months. And by then it is hoped that an agreement will have been reached with the IMF to refinance the payment schedule for this year and next, he said.

IMF managing director Horst Koehler recognised Friday that negotiations with Argentina have made progress and that there is a commitment to reach an accord.

Perhaps more importantly, the IMF issued a communiqué announcing the postponement of the deadline for Argentina’s 140-million-dollar payment that was to come due Nov 22.

“The reason for delaying payment to the World Bank is that a date has not been set for signing an agreement with the IMF, and after months of negotiations, we are realising that we must have a clear financial programme for late 2002 and for 2003 in order to know how to manage our payments,” said Lavagna.

The IMF is demanding that the Argentine government achieve greater political consensus for an agreement. “That is the most important issue,” the minister admitted.

In a bid to prevent further backsliding, President Eduardo Duhalde is to meet with governors, ministers and lawmakers this weekend to lobby for their support.

The IMF and World Bank are asking Argentina to end next year with a fiscal surplus of 2.5 percent, to boost public service rates 30 percent and to restructure its banking system to facilitate inflows of new capital.

Lavagna insisted that the decision against payment “was not a negotiating tool to pressure the IMF, but rather the result of the Argentine reality.”

“The payments to the multilateral credit organisations pending since May are the equivalent of the total monetary reserves in the Treasury,” he said.

In the wake of the economic, political and social crisis that erupted in December 2001, Argentina’s reserves have plummeted from 14 billion dollars to nine billion, a sum equal to the foreign debt obligations that Argentina must face in the next six months without receiving fresh funds.

On May 25, 2003, Duhalde is slated to hand over power to the new government elected in March’s elections.

Argentina has repeatedly told the IMF that to prevent default it needs to refinance the pending 2002 debt and all of the debt for 2003 if this once-prosperous economy is to recover — and continue making payments on its debt in 2004.

This proposal would allow the country to prevent default on payments to international financial bodies. In December 2001 Argentina defaulted on a debt of 56 billion dollars — more than a third of its public debt — to private creditors.

Since then, all negotiations have been limited to multilateral credit organisations.

Argentina met its obligations with the financial institutions of some 4.3 billion dollars. But this week the Duhalde government decided to pay only the interest, some 10 percent of the 805-million-dollar capital owed the World Bank.

In 2002, “Argentina reduced its debt” by complying with payments and without external financial help, said Lavagna. But from now on the country will not be able to dig into its reserves if it hopes to avoid worsening the financial system’s vulnerability, he warned.

The official said the Argentine economy is “under-financed”.

“We don’t have domestic finance problems. We want the refinancing (of the external debt) so that we comply with creditors, but our plans for social assistance are the priority and are guaranteed for this year and next,” he said.

His comments came in response to the likely suspension of a 600-million dollar loan from the World Bank next week, originally intended to reinforce the programme that provides stipends to unemployed heads of household, payments that have been made monthly since May and are to last through 2003.

The programme costs an estimated 3.5 billion dollars annually, but to date the government has financed it without foreign aid, and is including it as a social expenditure in the 2003 national budget.