IMF holds off on collecting Argentine loan repayment

The IMF has allowed financially strapped Argentina to defer repayment of its debt to the Fund, but critics charge that it is the agency’s rigid free-market prescriptions which wrecked the Argentine economy in the first place.

by Emad Mekay

WASHINGTON: The International Monetary Fund (IMF) said on 16 January that it would give Argentina another year to make a loan repayment to the agency of some $933 million. This sum otherwise would have been due the following day.

The decision “shows the Fund’s desire to help Argentina overcome its difficult economic and social situation,” IMF Managing Director Horst Koehler said in a statement.

The Fund’s executive board was satisfied that Argentine authorities would work closely with the agency to develop a “comprehensive strategy to restore sustained growth,” the statement read. “The IMF stands ready, in cooperation with the World Bank and the Inter-American Development Bank, to assist in the development of such a strategy.”

Koehler said the Fund now would turn its attention to what he called core areas such as the exchange rate regime, the banking system, the fiscal policy framework and monetary policy.

As a result of the latest decision, taken under a stand-by credit established in 2001 to ease Argentina’s short-term money problems, the government in Buenos Aires will have to pay the $933 million in two installments over the next 18 months.

Argentina may ask for another extension to pay by January 2003 if it is able to demonstrate that payment as now expected would cause undue hardship, and provided it could satisfy the Fund with its actions to strengthen its balance of payments.

In December, the IMF said it would not bail out Argentina’s ailing economy until Buenos Aires made good on a pledge to adopt an austerity programme and erase its budget deficit.

The announcement is widely regarded as the spark that set afire Argentina’s tinderbox, because it was followed by a chain reaction that ran through the state and market and culminated in violent street protests and several rapid-fire changes in government. Argentina defaulted on part of its $141 billion debt in government bonds, making it the largest national default in history.

Critics long have said the IMF’s advice to debtor countries has led them down a path of chaos and economic turmoil. In recent months, market and political analysts from a broad ideological spectrum have said the Fund’s rigid free-market prescriptions imposed unrealistic conditions on Argentina’s people and political system.

“I think the news is good for a start,” economist Mark Weisbrot, of the Washington-based advocacy group Centre for Economic and Policy Research, said of the 16 January announcement. “But I think the Fund really owes Argentina a lot more than time or debt cancellation.”

Weisbrot faulted the IMF for backing Argentina’s policy of pegging the peso to the US dollar, saying this, “more than anything else, led to the destruction of the economy.” Initiated a decade ago, the peg was broadly credited with curbing hyperinflation.

The Fund’s announcement came the day after Argentine President Eduardo Duhalde spoke out against what he described as asymmetrical global policies that have translated into trade protectionism for the industrialized North and trade liberalization for the developing South.

Duhalde said he would not follow the IMF’s prescriptions for pulling his country out of crisis but would instead present the  multilateral organization with an alternative development plan, one, he said, “that I think they will understand.”

When a government sets out to resolve its problems, it takes for granted that it will receive aid from the multilateral financial institutions to which it belongs, particularly if the country is in a crisis as severe as Argentina’s, the president said.

But if the IMF does not offer the assistance Argentina needs, he added, “We’ll see how we manage.”

The new Argentine government had announced it was trying to strengthen its fiscal situation by cutting its spending by at least 15% for the 2002 budget and predicted a deficit of $1.9 billion, down from $11 billion in 2001. (IPS)