FINANCE: Argentina Pays Small Fraction Only of World Bank Debt

By Emad Mekay Reprint | | Print |

Emad Mekay

WASHINGTON, Nov 14 2002 (IPS) - Argentina paid only a fraction of its debt owed to the World Bank on Oct. 15, the institution announced Thursday.

In a statement, the Bank said that Argentina paid only 79.2 million dollars of the 805-million-dollar debt.

The news was released as the country’s economy minister meets here with officials from the Bank’s sister institution, the International Monetary Fund (IMF).

Bank rules say that no penalties will be assessed on Argentina as long as it pays the overdue amount within 30 days, by Nov. 15. But if the payment becomes 30 days overdue, no new loans will be considered for the troubled South American country and it will no longer be eligible for a reduction of interest charges that fall due over the following six months.

If Argentina fully pays the overdue amount within 30 days, the Bank will lift the restriction against consideration of new loans.

The Bank will continue to disburse money owed to the country under existing loan arrangements, and can do so as long as no payment becomes 60 days overdue.

Argentina had already received a 30-day grace period to repay the money.

The partial default demonstrates the difficulty Argentina faces in its discussions with the IMF. Economy Minister Roberto Lavagna has repeatedly said he hoped to strike a new deal with the Fund in time to pay off the Bank and other creditors.

It also shows that officials are eager to maintain the country’s reserves at nine billion dollars – the level required by the IMF to be eligible for assistance. The 79.2 million dollars Argentina paid Thursday covers only the interest on the amount due to the World Bank.

During the past 10 months of talks, the Fund has insisted that Buenos Aires come up with a viable plan for its economy and not just a strategy to get a quick bailout from the Washington-based institution.

The IMF stopped lending to Argentina after it defaulted on nearly 140 billion dollars of mostly private international loans in December last year. Buenos Aires’ colossal default is the largest national default in history.

After the default, Argentina turned to the Bank for emergency aid and to keep social programmes afloat in the face of massive social upheaval.

Thursday’s new default could not only further raise concerns over Argentina but also stir up worries about the performances of other Latin American economies closely linked with Argentina’s, the second largest in Latin America.

But one observer says the default should not raise fears about Argentina.

The country’s economy is now recovering and it does not need money from either institution, said Mark Weisbrat, co-director of the Centre of Economic and Policy Research, an independent Washington-based think-tank.

”I don’t really think they need either the Bank or the Fund at this point, since the economy is beginning to recover, exports are growing and they have a trade surplus. So they do not have a need for external financing,” he said.

Conditions imposed by the Fund in the past have caused more harm than good, he added. The country is now in a position to fund anti-poverty and social programmes itself, Weisbrat said.

Buenos Aires has been under the IMF’s tutelage since the early 1980s, when the country was in the throes of a foreign-debt crisis. Then, the government adopted IMF and World Bank prescriptions for trade liberalisation, deregulation, and privatisation.

But international investors, Wall Street executives, other emerging markets, and economists have been following Argentina’s saga with the IMF – and now with the Bank – closely for clues in calculating their next moves.

Foreign investors have already blacklisted Argentina, a measure that is likely to last years. Having taken losses in one country, private lenders also could refuse to lend to other emerging markets and developing countries, even those in more stable situations than Argentina, which could fuel further global contagion and recession.

Anti-poverty activists, market analysts, and officials alike have blamed the IMF for demanding politically untenable austerity measures from Argentina..

The Fund’s advice to debtor countries in general has led them down a path of chaos and economic turmoil, add critics.

Over the past four years of recession in Argentina, poverty rates rose from 31 to 53 percent of the population of 37 million, and unemployment climbed from 14 to 21.4 percent, according to official figures.

Only countries with troubled international relations, such as Iraq, Zimbabwe and Yugoslavia have defaulted before on World Bank loans.

FINANCE: Argentina Pays Small Fraction Only of World Bank Debt

By Emad Mekay Reprint | | Print |

Emad Mekay

WASHINGTON, Nov 14 2002 (IPS) - ¡ Argentina paid only a fraction of its debt owed to the World Bank on Oct. 15, the institution announced Thursday.
(more…)