ECONOMY-ARGENTINA: Paying the IMF – and Ignoring Its Advice

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Aug 9 2004 (IPS) - Over the past year, the Argentine government has threatened several times to default on its payments to the International Monetary Fund. But on Monday it announced that it would keep up its payments, without arguing.

Over the past year, the Argentine government has threatened several times to default on its payments to the International Monetary Fund (IMF). But on Monday it announced that it would keep up its payments, without arguing.

That decision, criticised by some economists who said it looked like the government was beginning to toe the IMF line, was seen by other analysts as a route to achieving greater autonomy in terms of economic policy, because it would obviate the need to negotiate with the international lender over and over again.

”We are going to fulfil our commitments to the IMF because we don’t want any kind of interference in the negotiations with the holders of the bonds” that the government defaulted on in late 2001, Cabinet chief Alberto Fernández said Monday, without providing further explanations of the reasons underlying the decision.

The announcement that it would draw on the country’s international reserves to meet the next debt servicing payments to the IMF, without prior discussion of economic targets, represents a shift in strategy by the centre-left government of President Néstor Kirchner.

When Kirchner took office in May 2003, Argentina’s reserves stood at around nine billion dollars. Today they have climbed to more than 18 billion, a much more ”comfortable situation”, which allows the government to do an about-face on its previous refusal to use the reserves to service the country’s bulky foreign debt, said Fernández.

Every month, Argentina pays off part of its 15 billion-dollar debt to the IMF, with the payments usually amounting to less than 150 million dollars.

But on the occasions when the payments have climbed especially high, into the billions of dollars, tense negotiations have resulted, in which the IMF has insisted on economic policy targets that the government has rejected, or the government has proposed goals that the IMF has refused to approve.

Economist Eduardo Curia, an adviser to the Economy Ministry, downplayed the significance of the decision to meet IMF payments, which he called ”circumstantial”.

In a conversation with IPS, he said the idea is to navigate, in the best possible fashion, a period of ”transition” until September, when the debt with Argentina’s private creditors will begin to be restructured.

”We are at a difficult moment. The U.S. elections have removed from the debate a traditional moderator between the government and the IMF. Nor is it a good idea to break off relations with the lender. That is why the decision was taken to pay, even though” the targets set by the Argentine government have not been approved, he said.

Parliamentary Deputy Claudio Lozano, an economist with the Argentine Workers’ Central (CTA) trade union, agreed with Curia that the government is attempting to eliminate the tension surrounding the restructuring with private holders of debt by meeting a payment.

But, he said, he did not believe the move implied greater steadfastness or autonomy in relations with the IMF.

”If the idea is to show a resolute stance in rejecting the conditionalities, the government should show that it is distancing itself from IMF principles, which we haven’t seen yet,” he told IPS.

But Alejandro Vanoli, a professor of international economy at the University of Buenos Aires, said the idea of paying without first gaining IMF approval of the government’s targets ”is interesting” to the extent that it enables the Kirchner administration to distance itself from agreements with the multilateral lending institution and follow more independent economic policies.

”Argentina could regain control over its economic policies and escape the straightjacket that the IMF traditionally imposes on it with prescriptions of recessive, harmful policies,” he commented to IPS.

In Vanoli’s view, the new route stops short of total incompliance, and anticipates greater independence, even if the government has not stated that this is one of its goals.

The analyst said authorities had insinuated that intention in a letter that the Economy Ministry addressed to the IMF last Thursday, which contained harsh criticism of the international lender.

In the message the government accused the IMF of committing ”serious errors” in its diagnosis of the crisis that followed Argentina’s late 2001 financial and political collapse, and of recommending ”inadequate policies” for overcoming it.

The Kirchner administration also asked the IMF for ”greater maneuvering room”.

Prior to Thursday’s letter, the IMF had issued a self-criticism, admitting that it had committed errors that contributed to deepening Argentina’s economic meltdown.

In Vanoli’s view, ignoring IMF recommendations ”would not be a catastrophe.”

Argentina’s foreign debt amounts to 145 billion dollars, and if the debt in dollars for bonds issued on the domestic market is figured in, the state owes a total of 180 billion dollars, more than 100 billion of which are owed to private bond-holders who have not received any payments since late 2001.

The government has offered to pay those creditors, but with a 75 percent reduction in the nominal value of the defaulted bonds.

However, the government had hoped, before the September start of the restructuring process, to have gained approval in the quarterly review of its agreement with the IMF.

Despite the Argentine economy’s current strong performance and the rise in the fiscal surplus and tax revenues, the IMF postponed the quarterly approval of the government’s targets, without rescheduling the review, thus pressuring it to improve its offer to the bondholders and allow the privatised utilities to increase their rates.

Since those demands were rejected by the Argentine government, the IMF refused to review the government’s goals, depriving Kirchner of that endorsement in its restructuring talks with private creditors holding defaulted debt.