[stop-imf] Argentina and Turkey updates

[Robert Weissman]

This summary is prepared by the External Affairs Department of the World
Bank. All material is taken directly from published and copyright wire
service stories and newspaper articles.

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Excerpted Headlines for Wednesday, October 31, 2001:
- ARGENTINA SEEKS FRESH I.M.F., G7 HELP FOR DEBT AID:  REPORTS.
- ASSURANCE FOR TURKEY OVER FURTHER BAILOUT.


ARGENTINA SEEKS FRESH I.M.F., G7 HELP FOR DEBT AID:  REPORTS. Argentina is
pressing multilateral lenders, the US Treasury and other G7 governments
for emergency financial assistance to reduce a portion of the nation's
$132 billion in outstanding debt, $95 billion of it in government bonds,
Dow Jones notes local news outlets reported yesterday.  Economy Minister
Domingo Cavallo is looking for $4.3 billion from the IMF and between $3
billion and $6 billion from the World Bank and the IDB, which the
government will pool and use to guarantee repayment of new bonds carrying
coupons below 10 percent annually, reported El Cronista (Argentina).  El
Mundo (Spain) and Cinco D=EDas (Spain) also report.

The IMF money would include the $3 billion the Fund promised Argentina in
August to restructure its debts, Dow Jones says. The balance would be an
advance payment of December's scheduled disbursement of almost $1.3
billion that Argentina has access to under its current credit facility
with the Fund, the newspaper said.  An IMF delegation visited senior
Economy Ministry officials and reviewed the nation's accounts on Monday
and returned to Washington, DC the same day without making a statement.

The Todo Noticias television network meanwhile reported that Cavallo and
Finance Secretary Daniel Marx telephoned US Treasury officials and senior
financial officials in other G7 nations early yesterday to ask them for
the cash Argentina needs to restructure its debts.

Cavallo has refused to provide specifics about the details of Argentina's
planned debt restructuring, other than to insist that bondholders won't
lose money or be forced to accept new debt for the securities they now
hold, notes the story.  However, he has hinted that he wants to repurchase
Argentine sovereign bonds and that he wants to provide investors in any
new government debt stronger repayment guarantees.  Some local news
outlets have speculated that Cavallo is trying to repurchase about $10
billion in Argentine debt, and that's why he needs as much multilateral
assistance as possible.

Presidential spokesman Juan Pablo Baylac said late yesterday that the
measures might be ready today, without indicating when the announcement
could be expected, notes Reuters.  For the first time, however, he gave
some insight into what the measures deal with, saying they include the
"voluntary restructuring" of the public debt and "a big social program"
with subsidies to low-income families.

President Fernando de la R=FAa yesterday aimed to calm nervous investors,
saying the country would not default on its $132 billion in debt or
devalue its currency, reports the Financial Times (p.7).  "I want to state
very clearly that there is nothing forced or coercive [about the planned
debt restructuring]," he said.  "It will be absolutely voluntary."

Despite almost constant contact and rumors that billions of dollars of new
aid could be needed to help make a possible debt restructuring orderly,
Buenos Aires has not received a solitary public word of support from the
IMF, notes Reuters and CNN.com.

"What we have here is a standoff," said one IMF source. "Argentina wants
the IMF to agree to what they want to do and the Fund refuses to endorse
the plan of trying to renegotiate some of its debt. The IMF and World Bank
are keeping their mouths shut. It's a standoff."

"The reason why the Fund won't say anything is because this is a matter
between the creditors and Argentina," the IMF source added. "Even if the
Fund comes out with a statement of support, why would creditors accept the
IMF's point of view? Who is the IMF to a dentist in Belgium who has
invested in Argentine bonds?"

Reuters adds in a separate story that the World Bank said yesterday it
still had not received a formal proposal from Argentina about Bank
participation in the country's planned bond exchange.  "We haven't
received a formal proposal from the Argentines in that regard," World Bank
spokesman Chris Neal is quoted as saying.  "The Banks' position is that we
have a lending scenario for $1 billion to $1.5 billion for fiscal year
2002 and that has not changed. That's really all that we have to say."

The Wall Street Journal (p. A16), meanwhile, reports that in an interview
yesterday, US Treasury Secretary Paul O'Neill suggested that the Bush
administration, which reluctantly backed an $8 billion IMF loan for
Argentina in August, was willing to let Buenos Aires go through some sort
of restructuring of its debt. He wasn't more specific. Part of the August
loan was earmarked to underwrite a swap of debt held by investors that
would give them new, more valuable bonds in lieu of suffering a default.
But economists calculate that additional funds are needed for that
operation to succeed.

Asked in an interview whether a restructuring would justify more IMF
money, O'Neill said the current situation "doesn't reach to that
judgment." Argentine President Fernando De la Rua and Mr. Cavallo "are
apparently developing their own initiative, and what I've seen of it
sounds good to me," O'Neill said, giving the Bush administration's first
public comments on the rapidly evolving and tense situation.

Commenting in an editorial, the Wall Street Journal (p. A24) says
Argentina needs a new economic strategy, including lower taxes, greater
labor flexibility and a more credible monetary policy. Dollarization once
looked promising as a monetary solution and it could once again. As for
"default," the only solution is a cold free-market shower for everyone,
including overseas bankers. The sooner the country faces that reality, the
sooner it can implement the reforms that can make it a more attractive
place for capital.

The political temptation for the Bush Treasury will be to sign off on one
more temporary IMF fix. But that will only lead to more agony down the
road, for Argentina and everyone else, says the editorial.

Martin Wolf of the FT (p.13) comments that the government has to make a
choice between abandonment of its currency board, together with a modest
write-down of debt, and maintenance of the currency board or even
dollarization, together with a far bigger write-down.  Argentina's is a
sad story, because it did so much right.  But it is now necessary to
accept harsh reality.  The authorities need to choose policies that will
allow their country to return to growth.
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ASSURANCE FOR TURKEY OVER FURTHER BAILOUT. Turkish Economy Minister Kemal
Dervis said yesterday that an agreement with international donors on
additional financial aid for the crisis-ridden Turkish economy was
expected in the coming days, AFP reports.  Dervis, who has recently held
intensive talks with the IMF, the World Bank and the G7 countries, said in
a written statement that an IMF executive board meeting on Monday "showed
that the support of the IMF and the World Bank for Turkey's economic
program is continuing in a strong manner."

The minister said the "urgent support" of the G7 group, which had pledged
to back Ankara, was of great significance for "efforts to meet mid-term
foreign financing needs, which will be discussed and finalized with
international financial institutions in the coming days," quotes the
story, noting that Turkey, the only Muslim country in NATO, is a key ally
for Washington in its anti-terror campaign.  The country has expressed
readiness to take part in a possible peacekeeping mission in post-Taliban
Afghanistan and is currently preparing to host a meeting of Afghan
opposition leaders.

"The tragic events of September 11 hit Turkey particularly hard because of
the country's location, its reliance on tourism and its heavy
indebtedness," IMF Managing Director Horst K=F6hler is quoted as saying.

Dervis issued his carefully-worded statement after K=F6hler announced late
on Monday that the Fund was sending a delegation to Ankara to help
"strengthen economic policy and ... discuss how best Turkey can continue
to be supported," notes the Financial Times (p.5).  The immediate priority
of the IMF team, headed by Juha Kahkonen, the IMF's Turkey desk chief,
will be to finalize with the Turkish government specific policies to
achieve tough budgetary targets for next year.

These are not only a condition for fresh money for 2002 that would amount
to Turkey's fourth international bailout in two years but are also a
precondition for the imminent release of a $3 billion tranche under
Turkey's current $15.7 billion rescue package granted by the IMF and the
World Bank after a devastating devaluation in February, notes the story.

Both Ankara and the G7 have been pressing the G7 to make bilateral
contributions to any new fund package, says the story.  "If the Fund were
to go it alone again, this would breach all historical standards for Fund
exposure (to one country) and raise issues of equality of treatment (for
fund borrowers," said one official.  The US has been keen to dispel the
impression that strict conditions for financial assistance-including a
shrinking of Turkey's bloated state machinery-will be relaxed because of
its strategic importance.  As one official put it: "These conditions are
not punishment for Turkey but medicine it needs to take to avoid lining up
year after year to receive another $10 billion."

In related news, the Washington Times (A14) reports that Turkey's
coalition government-an important ally in the U.S. war on terrorism-is
facing demands for resignation from parliamentarians and an increasingly
hostile media in the face of a persistent economic crisis. The government,
led by Prime Minister Bulent Ecevit, is accused of having no solution to
the crisis, despite presenting an austere budget for 2002 that would slash
government expenditures by 12 percent.

Prominent business leaders and members of the military are beginning to
call for parliamentary elections by spring, well ahead of the scheduled
date of 2004.