IMF's Stony Silence On Austerity Plans Worries Argentina


By:  Paul Blustein
The Washington Post, February 7, 2002

Buenos Aires, Feb. 6 -- With the Argentine economy heading toward gridlock, the government voiced frustration today at the apparent coolness of the International Monetary Fund toward the country's efforts to obtain emergency loans.

Economy Minister Jorge Remes Lenicov told reporters that "there should have been a stronger reply" from the IMF to the raft of monetary and budgetary plans the government has unveiled this week. The IMF, which usually volunteers praise for a government when it approves of its policies, has maintained a stony silence concerning most of Argentina's recent moves.

In another sign of the gulf separating Washington and Buenos Aires, John Taylor, the U.S. Treasury undersecretary for international affairs, told a congressional hearing that the Bush administration still expects Argentina to implement some politically painful measures to qualify for an international loan.

The verbal jousting heralds a game of chicken that appears to be developing over international aid to Argentina. The IMF and the Bush administration, the fund's dominant member government, are insisting that Buenos Aires adopt policies that will put the country's ravaged economy on a "sustainable" path to recovery, lest a new IMF loan go for naught as previous ones did. But failing to come through with help risks pushing Latin America's third-largest economy into total collapse, with unpredictable consequences for markets and democracy in the region.

The economy, already in its fourth year of recession, is showing signs of grinding to a halt because of the impact of the government's decision in late December to default on its $142 billion debt and abandon the peg linking the peso to the dollar. With the nation's creditworthiness in tatters, Argentine manufacturers cannot obtain the dollars they need from foreign lenders to import raw materials and parts, and some factories have been forced to shut down.

The auto industry has been especially hard hit. Production in January sank to about a third of the prior year's level; an industry association said this week.

Spending by consumers is drying up because they cannot obtain access to their bank deposits, which are frozen under a government order instituted late last year to stop a run on the banks. Another factor paralyzing economic activity came following the government's announcement Sunday that it planned to allow the peso to float freely. Fearful of a panicky sell-off, authorities temporarily prohibited banks and foreign exchange houses from trading pesos for other currencies, a ban that today was extended until Monday.

Although a sizable IMF loan could help restore a sense of stability and badly needed funds to the cash-starved economy, IMF officials are unhappy about some of the government's policies. They are especially fearful that the banking system will be unable to revive if the government goes through with plans to protect both bank depositors and borrowers from losses stemming from the peso devaluation.

Taylor, while promising Bush administration backing for sound Argentine policies, made clear that Washington has yet another concern -- the ability of Argentina's provinces to spend central government revenue without imposing taxes themselves. This system is a major reason for Argentina's chronic budget deficits, but changing it has proved almost impossible politically because the poorest provinces, which depend on the largess, are heavily represented in the Senate. 

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