IMF, Argentina To Hold Talks On Loan Package
Breaking a tense two-month standoff with Argentina, the International Monetary Fund said yesterday that it would soon begin negotiating with Buenos Aires on a loan package aimed at reviving the nation's crisis-stricken economy.
Some officials in the government of President Eduardo Duhalde have said they hope to obtain international loans totaling more than $20 billion, though IMF officials have said such a figure is too high.
Ever since Duhalde came to office in early January amid unrest that toppled two of his predecessors, the IMF has stood aloof from entering into negotiations with Argentina on the grounds that the government must first adopt policies that show promise of putting the economy on a "sustainable" path. That stance irked Argentine officials, who fear that their nation is at risk of total economic collapse and a political explosion. The most recent sign of impatience came this week when presidential spokesman Eduardo Amadeo, responding to tough rhetoric by a top fund official, told a Buenos Aires radio station that "there is a verbal diarrhea in the IMF."
Yesterday, however, chief IMF spokesman Thomas Dawson said that an Argentine budget agreement announced Wednesday "is a good sign we will be able to start negotiations in Buenos Aires in the near future." An IMF mission could depart for the Argentine capital as early as next week, he told a news conference.
The budget pact is aimed at resolving a problem that both IMF and Bush administration officials have said must be addressed: excessive spending by Argentina's provinces, which are legally entitled to spend revenue collected by the federal government. The arrangement is viewed in Washington as a primary cause of Argentina's over-borrowing in recent years. Under the deal struck Wednesday, the provinces would no longer have the right to obtain a definite amount of money from the central government; rather, they would receive a percentage of central government revenue, which could help limit the central government's deficit.
"I haven't seen any details yet, but I'm hopeful," Treasury Secretary Paul H. O'Neill said yesterday at a congressional hearing. "Before more money shows up, the holes in the bottom of the bucket must be fixed."
The Argentines are eager for international aid to overcome a number of woes that have caused their economy to plunge into near-paralysis since the government defaulted on its $142 billion debt and devalued the peso in early January. Having defaulted, the government is no longer able to borrow from private lenders, and thus cannot cover its deficits without resorting to printing more pesos, fueling inflation. Moreover, the banking system is in desperate need of a cash infusion because most of the institutions are facing insolvency as a result of losses stemming from the default and devaluation.
Dawson warned that, despite the possible breakthrough on the budget issue, the IMF negotiations won't be quick or easy. "I would stress that there is a considerable amount of work remaining to be done," he said, and he cited the revival of the banking system and the treatment of investors, both domestic and foreign, as issues that are likely to require extensive talks.
In an extraordinary departure from past practice, the IMF's mission will be headed by Anoop Singh, previously the deputy director of the Asia and Pacific Department, who was appointed this week to a new post, director of special operations.
That move clearly reflects dissatisfaction within the IMF's top ranks over the Western Hemisphere Department's handling of Argentina, although Dawson said the fund's management continues to hold the department's director, Claudio Loser, in high regard.
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