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Argentina plays chicken with IMF
From The Buenos Aires Herald September 26th 2002
http://www.buenosairesherald.com/
The government openly clashed with the IMF yesterday as months of deadlocked
aid talks raised the odds of the government defaulting on billions of
dollars it owes to international lending agencies. A sharp-tongued Economy
Minister Roberto Lavagna (photo) said an International Monetary Fund aid
deal would be the "only way" bankrupt Argentina would avoid
defaulting on debt owed to multilateral lenderinancial world that includes
Iraq.
Lavagna said the government’s top priority for its reserves was meeting
"non-negotiable" national goals like financing social programmes
and provincial governments, which the IMF has heavily criticized for uncontrolled
spending. The minister added that “the IMF has difficulties in keeping
its perception of the Argentine situation up to date. “There are
extremely important domestic objectives and there is also the objective
of meeting foreign obligations,” Lavagna told reporters. “The
only way of reconciling those two objectives and meeting them simultaneously
is with a deal with the IMF.” The minister said the government may
also reconsider its previous stated aim of waiting until reaching an IMF
deal before negotiating with private creditors in the wake of last year’s
default on its public debt.
“We’ll see how talks (with the IMF) go in coming weeks and if
we need to give private investors different treatment than we’ve
been giving them up until today. There are growing voices from private
investors who are bothered by the delay that the (IMF) is causing,”
Lavagna said. Officials say Argentina cannot afford to fork out a sixth
of its roughly $9.5 billion in reserves just to pay what it owes the IMF,
World Bank and Inter-American Development Bank by the end of November.
Argentina already defaulted on $95 billion in debt held by private investors
in January. But non-payment of multilateral debts would cut off Argentina
from all financing abroad, further worsening a four year recession. IMF
chief Horst Köhler called for “a minimum amount of public consensus”
to reach an aid deal, echoing views of foreign officials that a united
government must make spending cuts and avoid populist laws to help the
country out of its worst-ever economic crisis. “We’re making
a call on the public: we want to reach a deal with President Duhalde,”
Köhler told local newspapers yesterday. “We’re asking for
a minimal amount of public consensus, including institutions like the
judicial system and the Congress.”
Growing problems in what was a showcase of market reform in the 1990s
have sent shockwaves around Latin America, where neighbouring Brazil is
now suffering from market jitters prior to presidential elections in October.
The prospect of further isolation for Argentina hit stocks in Spain, where
banks and utility companies there have invested billions of dollars in
Argentina. Spain’s Ibex share index closed at five-year lows yesterday.
A default would also be a body blow for transitional President Duhalde,
who is already unpopular and who hinted yesterday that March presidential
elections could be brought forward to December or January if courts allow.
Many presidential hopefuls have called for early elections, arguing Argentina
needs a leader with popular backing to guide it through economic depression,
tough aid talks and simmering social protests. A default would also be
bad news for the IMF. Argentina is the IMF’s third largest debtor
with about $12.7 billion outstanding. Argentina owes $14.6 billion in
multilateral debts, including the World Bank and Inter-American Development
Bank, before the end of 2003. (Herald staff with Reuters)
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