Development & Aid, Economy & Trade, Headlines, Latin America & the Caribbean, North America

FINANCE: IMF Rewards Argentina for Engaging Private Creditors

Emad Mekay

WASHINGTON, Mar 11 2004 (IPS) - The International Monetary Fund said Wednesday it plans to give Argentina another three billon dollars in what appears to be a reward for the country’s decision to repay an earlier debt and for dropping its reluctance to talk with private creditors.

But critics say the IMF is squeezing the South American nation too hard on behalf of private interests.

In a statement Wednesday, the Fund said the disbursement of 3.1 billion dollars, the latest in a bailout package of 13.3 dollars billion agreed with Argentina in September 2003, will come before its board later this month for final approval.

The decision was also based on the rapid growth of the country’s economy, it added.

Argentina was long a good disciple of the so-called ‘Washington Consensus’ – a set of 10 policy recommendations that promote economic liberalisation, such as privatisation of public companies, which Washington and Wall Street demand of less developed nations – until it defaulted on some 141 billion dollars in debt in December 2001.

Ever since, Argentina has became a symbol of financial instability in Latin America, under the tutelage of the IMF and its sister institution, the World Bank.

But recent talks between Buenos Aires and the IMF have been bumpy after the multilateral lender sided with private creditors against the South American nation.

Argentina, at one point in its history the richest country in Latin America, says it wants to give commercial creditors only one-quarter of the money it owes them.

The creditors, backed by the IMF, say they want at least 65 percent of each dollar, in addition to interest.

Argentina owes 100 billion dollars in defaulted private debts, 88 billion of that to bond holders.

Buenos Aires accused the IMF, a public institution, of pressing Argentina towards economic and austerity measures that mainly benefit rich creditors, and of having little regard for its local economy, rising poverty or other impacts on the country’s people.

Under previous IMF programmes more than 50 percent of Argentines ended up living under the poverty line of less than two dollars a day.

Under international pressure, in September 2003 the new government of President Nestor Kirchner agreed to a three-year rescue package that included demands to collect more taxes, limit provincial spending and borrowing and end a price freeze on utilities fees, among other measures.

Now, some analysts say the IMF should not be intervening on behalf of the creditors.

"There’s no legitimate reason for the IMF to be squeezing Argentina on behalf of the private creditors," said Mark Weisbrot, co-director of the Centre for Economic and Policy Research in Washington.

"That’s not their mandate. It’s not their charter. It is not their job. It’s really over-stepping their legitimate function."

Argentine officials too say the Fund had no right to extend its goals, included in the rescue package, to a deal with creditors.

Critics say IMF officials are under pressure from the Fund’s political masters within the Group of Seven (G7) most industrialised nations.

Pressure has also come directly from the United States. U.S. president George W. Bush met Kirchner at the Summit of the Americas in Mexico in January, and urged him to negotiate with private holders of Argentina’s defaulted debt.

On Wednesday, the U.S. Treasury Department also nudged Argentina.

"It continues to be essential for Argentina to make progress on debt restructuring with private creditors," Randal K. Quarles, assistant secretary of treasury for international affairs, told the Senate Banking Committee.

Acting on behalf of creditors at home, other G7 countries, especially Italy Germany and Japan, joined in applying pressure.

Buenos Aires finally gave in, with the government saying it has made arrangements to hire investment-banking advisors to handle its debt exchange.

IMF Spokesman Francisco Baker told IPS on Thursday that Argentina has now agreed to negotiate with all groups representing private creditors.

But Wednesday’s deal does not clarify if Argentina will budge on its offer to pay only 25 percent of its debt.

The nation’s overall debt surpasses 141 billion dollars, not counting the interest accumulated since the 2001 default.

Some economists argue that the Argentine economy cannot afford anything more.

"I don’t really see why they have to give the creditors any more than what they want to or can afford," said Weisbrot.

"Creditors were loaning at very high interest rates, because they were are taking a high risk. They were loaning into a situation that was unsustainable. That’s capitalism, you know. Sometimes you gamble and you lose."

Argentina does not even need the IMF approval or loans, Weisbrot argued. "Ultimately, the IMF has a lot more to lose from a default than Argentina does," he added.

Nearly 15 percent of the Fund’s credit portfolio went to Argentina, while only three countries – Brazil, Turkey and Argentina – account for 72 percent of all outstanding general credit at the institution.

"There’s not that much that the IMF can do to (Argentina)", Weisbrot said. "They’ve already done it all – when they were flat on their back and were totally desperate and needed a loan, the IMF didn’t give them anything; it took money from them, as the matter of fact."