ECONOMY-ARGENTINA: Temporary Pact with IMF Brings Sigh of Relief

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Jan 17 2003 (IPS) - A feeling of relief spread through Argentina Friday in the wake of an agreement reached the prior evening with the International Monetary Fund (IMF). Negotiators achieved an eight-month postponement on debt payments to multilateral finance organisations after a year of talks.

The IMF Board, in Washington, has yet to approve the accord between its technical team and the Argentine government – it is likely to do so at its Jan 23 meeting -allowing the reprogramming of more than 11 billion dollars in debt payments.

IMF spokesman Thomas Dawson said, "This is an agreement that attempts to maintain the progress that has been made," noting that the Argentine economy has attained stabilisation.

The Southern Cone nation has suffered a four-year economic recession, with the crisis reaching unprecedented proportions in 2002.

Dawson denied that the threat of Argentina’s default on IMF loans had produced the agreement, which is to remain in force through Aug 31 and does not call for debt payments.

After the deal was signed late Thursday, Argentina’s Central Bank ordered the payment to the IMF, using international reserves, of nearly a billion dollars. The sum is to be recuperated before the end of the month, assuming the Board approves the agreement.

President Eduardo Duhalde said Friday that the accord should have been for a longer period, but said its shorter validity is understandable given the political context that produced it.

Presidential elections are slated for Apr 27, and "the requirement of attaining political agreement (among the pre-candidates) would have been impossible in the midst of an electoral campaign," Duhalde said.

Economy minister Roberto Lavagna said Friday that his idea was to reach a commitment to postpone the payment deadlines, which also cover those for 2004. But this proved impossible due to "lack of political will" among the pre-candidates for the Argentine presidency, he added.

This new "understanding" with the IMF will "leave the next president’s hands free," Lavagna said.

In government, business and academic circles here, a sense of reprieve predominated Friday as a result of the IMF deal, despite its short-term scope, because it staves off debt default and accompanying negative repercussions for the incipient recovery of the economy.

The most important thing is that the negotiators "refinanced the payment schedule for the coming months without compromising reserves," as had occurred in the last year, commented economist Benjamín Hopenhayn, a member of the Grupo Fénix, a team of intellectuals that has drafted a detailed alternative to the government’s plan to resolve the Argentine crisis.

Nearly all local economists, business executives and politicians, including the opposition, are saying that the agreement is a step forward, although some believe it is only putting off the resolution of deeper problems.

Among the critics is economist Claudio Lozano, of the CTA, a major trade union, who said that it is a "limited and provisional accord that doesn’t resolve anything." It lacks measures aimed at a more equitable distribution of income, which Lozano says is essential for strengthening the reactivation of the economy.

The rescheduling of the debt covers 6.6 billion dollars owed the IMF and another 4.4 billion owed the World Bank and the Inter-American Development Bank (IDB). Argentina was nearing a situation of debt default with the latter two institutions.

Official statements mention reprogramming debt payments worth 16 billion dollars because minister Lavagna has added the more than five billion dollars that the IMF had agreed to refinance in the closing months of 2002, when an accord was not yet in sight.

The pact with the IMF was the first and inevitable step for a broader renegotiation of Argentina’s public foreign debt of nearly 150 billion dollars, which Duhalde’s successor will have to deal with after taking office May 25.

Also pending is the reprogramming of the public debt held with private holders of state-issued bonds.

Another effect of the agreement was to ensure that the credits already agreed with the World Bank and IDB will be disbursed. The pay-outs had been in danger since the Duhalde government decided against making the repayments due the two organisations in the recent months, believing a pact with the IMF was imminent.

In December 2001, after nearly three years of recession, Argentina tumbled into a period of political, social and economic collapse after then-president Fernando de la Rúa resigned amidst massive protests. Then Argentina halted payments on the foreign debt held by private creditors.

Duhalde, who Congress named president on Dec 31, 2001, tried for months – unsuccessfully – to obtain a loan from the IMF. Meanwhile, the crisis deepened.

Soon after Lavagna was designated economy minister in mid-2002, the depreciation of the Argentine peso came to a halt, after falling more than 75 percent in six months. Prices on the domestic market stabilised and some sectors of farming and industry began to show signs of recovery.

In this context, Lavagna decided to stop using the diminished cash reserves to pay off debts to international organisations until an accord was reached with the IMF.

His decision came under fire from the IMF, but in the end pressure from the Group of Seven (G-7) most industrialised countries apparently was able to break the Fund’s resistance.

The G-7 members (Britain, Canada, France, Germany, Italy, Japan and the United States) contributed to varying degrees in convincing the IMF Board to hammer out a provisional agreement with Argentina to boost the economy and allow the troubled nation to begin renegotiating its debt with private creditors.

Lavagna explained that the agreement does not include the traditional IMF requirements of cutting public spending and implementing structural reforms, but only commits Argentina to achieving three-percent GDP growth and a 2.5-percent fiscal surplus, as well as ensuring that inflation does not surpass 22 percent in 2003.