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Some related articles : Argentina Workers Demand Back Pay Back in Business, Argentina Calms Down and the Peso Perks Up |
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Argentine Foundation Keeps Crumbling
By:
Larry Rohter
Rio de Janeiro, May 13 - With Argentina's foreign
currency reserves dwindling and its ability to borrow abroad blocked by
past defaults, its government is facing a desperate cash squeeze and is
asking the World Bank to let it put off repaying $800 million in loans
that come due this week, President Eduardo Duhalde said today. The country's economic crisis, already the most severe in its history, is taking one turn after another for the worse, and Argentines are becoming more and more nervous. Labor unions aligned with the Peronist party of Mr. Duhalde have called a nationwide strike on Tuesday, and rumors over the weekend that several banks were about to collapse led to a run on automated teller machines. In another blow to confidence, the government said over the weekend that for the second time it has had to abandon a plan to shore up the banking system by forcibly converting billions of dollars in frozen bank deposits into bonds. "We're now back to Square 1," the new economy minister, Roberto Lavagna, said in a television interview, making it clear that the government was out of ideas. The bond plan had to be discarded, he said, because it "carried too high a cost for the government" once the banks refused to back the new security with their own assets. The Congress rejected a similar proposal three weeks ago, leading to a cabinet shake-up that has weakened Mr. Duhalde's authority and sowed uncertainty about the future of the financial system. With international markets and banks watching Argentina closely for any sign of further deterioration in the government's already weak finances, an outright default on the World Bank loan due this week would be disastrous, and would cut the country off from its last source of credit. "Not repaying is suicide," the president's spokesman, Eduardo Amadeo, acknowledged over the weekend. At least in theory, Mr. Duhalde should be able to draw from the Argentine central bank's reserves to make the payment. But the central bank is nominally autonomous, and it is not clear how the economy ministry would obtain the money, or whether it could be done in time to meet the deadline on Wednesday. In addition, Argentina's foreign reserves have been eroding by as much as $200 million a day despite the freeze on most withdrawals from bank accounts, decreed in December and tightened by Mr. Duhalde after he took office in January. On May 8, reserves dipped to $11.77 billion; in early April they stood at more than $13 billion. If central bank reserves are used, "the money will be returned once we get the refinancing that we are negotiating" with the International Monetary Fund, Mr. Amadeo promised. But negotiations with the fund are stalled now over the failure of the country's provincial governments to fulfill promises of spending cuts and over the Congress's slowness in rewriting bankruptcy and "economic subversion" legislation that the fund opposes. The Duhalde government is plainly growing frustrated, and in the view of some analysts, has begun grasping at straws. Last week, Mr. Duhalde said he hoped to get the money to repay the World Bank from a bridge loan provided by other Latin American governments. He did not mention any countries by name; Argentine news reports said he was focusing on Brazil, Chile and Mexico. Though Argentina's neighbors have criticized international lending organizations for inflexibility, their reaction to Mr. Duhalde's proposal was cool. For example, Chile said it was willing to help, but only as part of a multilateral solution. "I haven't talked about this matter with President Duhalde, and the only thing I would like to say is that I don't know what this bridge credit would consist of," Ricardo Lagos, the president of Chile, said in an interview in Santiago last week. "To make a bridge to what? I don't know the details." As a result of such doubts, that plan has now been shelved. "One cannot compromise friendly countries in an operation that is going to be regarded badly" by the International Monetary Fund and other creditors, Mr. Lavagna said. In a television interview on Sunday, Mr. Duhalde floated another plan to ease pressure on the banks and raise money. He suggested allowing Argentines to use their otherwise frozen bank balances to buy government-owned real estate, furniture and vehicles. "The state has thousands and thousands of goods that it doesn't use," Mr. Duhalde said. "We should study how we can compensate people's savings with the state's property." The initial response to the plan has largely been skeptical to scornful. With confidence in Mr. Duhalde ebbing, about the only positive sign that his government can point to is a new credit from the Inter-American Development Bank. Spokesmen for the government said that Enrique Iglesias, president of the bank, was expected in Buenos Aires tonight and would sign an agreement granting Argentina $700 million, ostensibly for social programs, when he arrived. FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Action on Aging distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.
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