[stop-imf] Argentina: survey of intl press reporting and commentary

[Robert Weissman]

Excerpts from World Bank's Development News Press Review
January 4, 2002


ARGENTINE CABINET SWORN IN; NEW ECONOMY PLAN TO BE PRESENTED FRIDAY.

Argentine President Eduardo Duhalde swore in his Cabinet on Thursday,
and his
economy minister promised new measures to rescue Argentina's finances, amid
reports the peso could be devalued as much as 40 percent, AP and CNN.com report.
Economy Minister Jorge Remes Lenicov said he would announce the measures Friday.

Duhalde, 60 and a veteran of the Peronist Party's left-leaning, populist wing,
took office Wednesday as Argentina's fifth president in two weeks. He
hinted he
would veer away from the free-market economic policies he blames for his
country's ruin. Remes Lenicov served as the economy minister of Buenos Aires
province from 1989 to 1997. In the past, says the story, he has shied
away from
the IMF-recommended recipe for development: austerity policies, unbridled
markets and international free trade.

AFP adds cabinet chief Jorge Capitanich said, "The philosophy of this (economic)
plan is to seek to avert a worsening of the social crisis." Lenicov was expected
to outline economic policies based on the scrapping of the decade-old
1-1 peg of
the peso to the dollar, which once ended hyperinflation but is now
blamed for
making exports less competitive.

A senator for Duhalde's Peronist party, who asked not to be identified, provided
AFP some details of the economic reactivation program Lenicov was to
unveil. He
said there would be two types of currency: one for importers and
exporters, and
another that would be allowed to float on the free market. "We prefer to
have a
fixed currency so exporters can trade the dollars they bring in at the
rate of
1.35 pesos. The central bank will sell the dollar to importers of basic
goods at
1.35 pesos," said the senator.

Also reporting, the Financial Times (p. 1) says Duhalde failed in his
efforts to
form a government of broad political consensus, falling back instead on
a core
group of his own supporters. The opposition Radical party opted to
remain on the
sidelines. Explaining his decision, Angel Rozas, leader of the Radical party,
said: "We have to accept that we have failed, that we have run up a debt with
the Argentine people... and we don't have the right to ask for anything."

The article notes Argentina on Thursday formally entered into default on its
$155 billion in federal and provincial debt, when it failed to pay $28 million
in interest payments due on lira-denominated bonds due 2007.

The Wall Street Journal (p. A5), meanwhile, says Argentina's pending
default is
posing some prickly questions about whether one of its biggest creditors
- the
IMF is going to get paid. President Eduardo Duhalde, who took office Tuesday
promising to enforce the moratorium on foreign-debt payments announced
by one of
his predecessors, hasn't singled out the IMF or other so-called multilateral
lenders. But he hasn't excluded them either, as the government scrapes together
its remaining cash to keep the economy afloat.

The IMF, World Bank and Inter-American Development Bank are typically exempted
from government-debt defaults because they lend at extremely low
interest rates,
often below 3 percent annually, and do so during crisis situations when other
lenders have backed off. An official at Argentina's Economy Ministry wouldn't
comment.

People familiar with the IMF say it will probably make an extraordinary effort
to avoid letting Argentina fall into arrears - possibly by lending more
money -
even though it froze pending payments to Argentina late last year, when the
government failed to hit economic targets. But if Argentina fails to make
payments to the IMF for six months, it would join a shortlist of
deadbeat states
that includes Afghanistan, the Democratic Republic of Congo, Iraq,
Liberia and
Sudan.

A World Bank spokesman said its representatives hope to meet with Argentine
officials next week to discuss the status of its $9.5 billion in loans.
"There's time to work things out," the spokesman said.

Further, Reuters, AFP and El Cronista (Spain) report the IMF said
Thursday it
was ready to work with the new government in Argentina but was mum on reports
that Buenos Aires was negotiating a $15-billion credit with the Fund.

"It's the government's first day in office and obviously too soon to expect
there to have been an exchange of views on policy," IMF spokesman Bill
Murray is
quoted as saying. "However, we are ready to work closely with the new government
to help it meet the economic challenges that it faces," he noted. Murray
said he
had "no response to that report" when asked about media accounts that Argentina
would negotiate a new $15 billion credit with the IMF.

Also reporting, El País (Spain, p.4) and El Mundo (Spain, p.21) note that
Spanish companies and banks are the main foreign investors in Argentina, and
could suffer huge losses in a devaluation.  The Argentine government has pledged
cooperation. Commenting in an editorial, El Mundo says the companies
should be
able to assume the losses through provisions; the important thing is to bring
cash back to the system and preserve bank deposits.

Separately, the Washington Post (p. A22) reports the collapse of Latin America's
third-largest economy has further increased pressure to abolish the
dollar peg
and devalue the peso.  All major papers in Argentina report on the current
situation there.



ARGENTINA: COMMENTARY



A New York Times (p. A24) editorial says most economists believe that a
devaluation, though politically difficult, is needed to make the country's
exports more competitive. The government must also restore confidence in the
financial system to a point where it can lift unpopular limits on bank
withdrawals.

The IMF and other foreign creditors share the blame for Argentina's
woes, the
editorial says. They were arguably too indulgent for too long, even
after it
became apparent that Argentina was too indebted and its currency was overvalued.
The IMF then held Argentina to an unsustainable austerity program amid a
recession, and abruptly cut off promised loans late last year,
contributing to
the financial panic.

It would be a tragic mistake, however, for Duhalde to fuel Argentines' sense
that theirs is a rich nation forced into poverty by outside forces.
Blaming the
free market or globalization for the country's ills, and adopting an overly
protectionist course for South America's second-largest economy, would
only make
matters worse. Argentina must instead acknowledge and address its past failures
to reform its public finances, and become a more competitive exporter, the
editorial says.

There is a risk that Argentina will slide towards mob rule, says an
editorial in
the Economist meanwhile. What can stop that awful prospect? The first
requirement is a competent and legitimate government. Ideally, that
should have
emerged from a fresh election. But the country lacks both the time and the
stomach for this. Duhalde, whom [Former President] de la Rua defeated in 1999,
is no paragon. But he is at least a pragmatist and a political
heavyweight. The
second requirement is a new economic plan. This must start by
recognizing the
collapse of the country's currency board, which pegged the peso at par
to the
dollar-and which Cavallo and de la Rua misguidedly defended long beyond the
point at which it had become unsustainable.

What should take its place? None of the options is good, but some are
worse than
others. An especially bad idea is Rodriguez Saa's plan for a new,
non-convertible currency (the argentino). That solves nothing, and is a recipe
for inflation. Weighing the bleak alternatives, the least bad policy is
to float
the peso, the editorial says.

Also commenting on "Argentina's route to salvation" Ricardo Hausmann of Harvard
University writes in the FT (p. 13) that a competitive exchange rate, a more
open economy and sound banks should be the priorities. Argentina should
not seek
debt forgiveness from the IMF, the World Bank or the Inter-American Development
Bank. It should not run into arrears with these institutions either.
Instead, it
should gain their continued financial support as it negotiates a private debt
restructuring with a large write-down.

Further, Mark Falcoff of the American Enterprise Institute writes in
Wall Street
Journal (p. A13) that far more than a new president, a different party, a
show-trial of allegedly corrupt politicians, or a huge rescue package
from the
IMF or the US Treasury, what Argentina really needs is a serious
national debate
about how a country so rich in natural resources and human capital has managed
to decline so precipitously these past 50 years.

As the Mexican and Asian crises showed, an FT editorial (p. 12) says meanwhile,
developing countries should not embark on capital account liberalization before
they are sure their banking systems are well capitalized and regulated. Now
Argentina is telling us that countries should be very circumspect about foreign
bond markets before they have established a cast-iron, investment-grade credit
rating and a robust fiscal position.

Separately, a Los Angeles Times editorial (p. A18) notes the new
president seems
to have the support of the political establishment.  Now he needs the political
courage to tell a suffering people that they must suffer even more, and to
withstand their wrath while disciplined austerity slowly brings
Argentina back
from the brink of catastrophe.  If he shows that determination he
deserves the
support of international financial institutions and the U.S.