ARGENTINA: No IMF Deal Yet, but Relations May Have Turned a Corner

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Aug 22 2003 (IPS) - Argentina hopes to seal an agreement with the IMF before 2.9 billion dollars in debt comes due Sep. 9, and there are indications that the Néstor Kirchner administration is taking a more firm approach yet improving relations with the Fund, but the road remains littered with obstacles.

Although its negotiating team headed home earlier this week, the International Monetary Fund issued assurances Thursday that talks are on schedule, suggesting that the two sides could meet again before the end of the month.

Argentina’s aim is a postponement of interest payments of 15 billion dollars that come due over the next three years.

Economy Minister Roberto Lavagna has said that Argentina would not seek new IMF loans in order to avoid increasing the country’s debt, which stands at some 140 billion dollars.

Kirchner has stressed that Argentina will not dip into its reserves to make debt payments. He hinted earlier this week that it would be difficult to reach an agreement on a three-year deal prior to the Sep. 9 deadline.

This stipulation is not the only thing complicating the already thorny negotiation agenda: the IMF demands strict fiscal adjustments, compensation for businesses and banks hurt by the 2001 financial crisis, and a reform of the banking system.

Meanwhile, the Argentine government is working to shore up the incipient economic stability that has been achieved despite the lack of external support.

"We cannot continue condemning our people to poverty and marginalization in order to simulate compliance with an unpayable debt," Kirchner said Monday during an official visit from Venezuela’s President Hugo Chávez.

Kirchner’s Cabinet chief, Alberto Fernández said that Argentina would not sign "an agreement which postpones our chances for growth or prevents us from escaping the recession," and had reiterated that the interest payments coming due next month will not be paid using reserves.

"We had moderate expectations for a different kind of negotiation process," says economist Alejandro Vanoli, professor at the University of Buenos Aires and member of the ‘Grupo Fénix’, a loose association of experts that oppose the neoliberal economic model that dominated Argentine policy throughout the 1990s.

Kirchner took office on May 25, and his administration made a decision to "take a different stance with the IMF with respect to what was done in the 1990s, when Argentina accepted the institution’s conditions and acted as its star pupil," Vanoli told IPS.

Fellow economist Martín Hourest, a researcher with the CTA, one of Argentina’s principal labour unions, said that the agenda the new government wants to follow is "clearly different" from the official position in the past decade with regard to international financial institutions.

Hourest noted in a conversation with IPS that several contentious issues are encompassed by the talks with the IMF, making it difficult to predict results.

"Kirchner’s economic policy is not yet defined and there is a clash of interests. The government is looking to various groups for support. It remains to be seen how the scenario will evolve," he said.

The experts point to conditions that contribute to helping Argentina reinforce its negotiating position.

In the first place, Vanoli cited the decision taken in 2002 by Lavagna – as economy minister under former president Eduardo Duhalde (2002-2003) – to not use the state’s international reserves to pay off debts, with the hope of sustaining what stability had been achieved at the time.

"That decision marked a turning point," because it served to consolidate the stabilisation process and promote tenuous growth in economic activity after four years of recession and the worst economic, social and political crisis in the country’s history.

Furthermore, the policies recommended by the IMF are being widely discredited in the international community, and that plays in Argentina’s favour, commented Vanoli.

The IMF is receiving "fierce criticisms" from sectors that have traditionally been allies, and even from more conservative groups that condemn the institution for prescribing faulty measures or for granting countries fresh funds.

"It is no long an unquestioned and all-powerful institution sitting across the negotiating table," he said.

For years, economic crises have been blamed on the debtor countries, but today there is greater awareness of the responsibilities of the IMF, financial speculation and credit ratings firms in contributing to economic troubles.

Earlier this month the U.S. daily The Washington Post published a commentary blaming the financial actors involved in the New York Stock Exchange for encouraging the notion that Argentina was a "success story", and that the country’s debt titles represented a good financial opportunity.

"Thus were sown the seeds of one of the most spectacular economic collapses in modern history, a debacle in which Wall Street played a major role," wrote columnist Paul Blustein, who goes on to cite repentant financial analysts who were involved in those manoeuvres.

In Hourest’s opinion, in the Argentina-IMF negotiations the principle of "co-responsibility" between debtor and creditor must prevail. "In the 1990s there was also a fiscal deficit, but the IMF granted billions of dollars in loans to sustain a model that favoured capital flight," he said.

Given this panorama, the Argentine negotiators have rejected some of the IMF’s demands, such as achieving a fiscal surplus of four percent of gross domestic product (GDP), earmarked to pay off debt. Buenos Aires is offering three percent.

Economist Miguel Angel Broda, an adviser to big corporations, told his clients this month at the Kirchner government would not endanger economic recovery committing itself to achieving a high surplus.

The IMF is urging Argentina to compensate banks for losses suffered during the 2001 financial crisis, when they had to pay out dollar deposits at a rate of 1.40 pesos, while receiving loan payments in pesos at a rate much more favourable to the debt holders.

Furthermore, the IMF defends the companies that now own the privatised public utilities – most of which are subsidiaries of foreign firms – that are demanding increases in rates that have been frozen since early 2002.

Since then inflation has been 43 percent, but the government is resisting rate hikes that would take a big bite out of consumers’ pockets.

But the executive branch did present a bill in parliament that gives lawmakers the authority to modify the privatisation contracts and increase rates. The Senate approved the bill Thursday, but the Chamber of Deputies has yet to vote on it.

In Vanoli’s opinion, if the government aims to carry out a plan for economic growth and increased unemployment, it is "absolutely necessary" that Argentina obtains an extension on interest payment deadlines with the credit institutions.

In addition, the country needs a reduction in the debt capital owed private creditors – in default since December 2001.

"Countries suffering long recessions require stimulus policies with low interest rates, higher spending and lower taxes, but in developing countries (the credit institutions) demand just the opposite: fiscal adjustment, high interest rates and high taxes," said the economist, also citing the case of neighbouring Brazil.

The pledge that the leftist president of Brazil, Luiz Inácio Lula da Silva, made to attain a five-percent GDP fiscal surplus "is not good for Argentina," said Vanoli.

"Greater harmony within Mercosur (Southern Common Market, which the two countries comprise with Paraguay and Uruguay) would put Argentina on more equal footing to negotiate with the IMF," he added.

The economic deceleration in Brazil, which coincides with Lula’s strict fiscal adjustment policy aimed at winning the confidence of the financial markets, would not benefit Argentina, but could serve "as a model of what should be avoided" when dealing with the IMF.

The unfolding of Argentina’s relationship with the IMF will mark the country’s economic policy for years to come.

"Argentina’s future depends a great deal on these negotiations," Vanoli said.