[stop-imf] Updates on Argentina, Turkey (WB press review)

[Robert Weissman]

Excerpts from the World Bank's Press Review


Headlines for Monday, January 7, 2002:
- ARGENTINA DEVALUES, ADOPTS DUAL EXCHANGE RATE.
- TURKEY'S REFORMS AIM TO WIN $16 BLN I.MF. LOAN.


ARGENTINA DEVALUES, ADOPTS DUAL EXCHANGE RATE.

Argentina yesterday devalued its currency 29 percent and adopted a dual exchange
rate after Congress granted President Eduardo Duhalde emergency powers
to revive
the moribund economy, reports Agence France-Presse.  The government announced
that the Argentine currency would be floated, but that a rate of 1.40
pesos to
the US dollar would be set for international transactions.  "There will
be a
fixed official exchange rate set at 1.40 pesos that will be used for
transactions of goods, services and movement of capital," Economy
Minister Jorge
Remes Lenicov said, noting that the set rate eventually would be abolished.

He said IMF officials told him that "the best is floating the currency," but
that he asked them to accept the dual system "for four to five months." 
He also
said currency markets, shuttered since December 21, would reopen on Wednesday.

A two-day bank holiday begins today to prepare for the devaluation,
notes the
BBC, adding that Remes Lenicov sought to reassure savers that the state would
not take money from them and promised support for the most vulnerable
sectors of
society. Yesterday's plan of action comes after three weeks during which unrest
spread through Argentine society, bringing down two presidents and
leaving 27
people dead and severe cash shortages.

The Argentine government may ask international lenders for another $15 billion
to $20 billion in aid, Reuters reports Remes Lenicov also said
yesterday.  "We
are going to ask for a number that might enable us to get out of the
hole we are
in quickly," he is quoted as saying. "It could be $15 billion to $20 billion,
but we haven't analyzed it internally yet."

The IMF handed over $22 billion alone over the last year, but has said
it is
ready to work with the new government.

Remes Lenicov said he planned to start renegotiating Argentina's foreign debt
with creditors in early February, after Latin America's No.3 economy suspended
payments and defaulted on part of its $141 billion debt pile. He said the
government would also concentrate on rebuilding its ties with international
lenders and credit bodies.

Argentines got fresh proof Saturday of the calamitous state of their country's
finances when the government announced a $11 billion budget deficit for 2001,
CNN notes the Associated Press reports.  As late as November, the previous
government was predicting a deficit of $7.8 billion-already well above
the $6.5
billion target agreed upon with the Fund last August in return for $8
billion in
emergency aid.  Speaking on local radio, Cabinet Chief Jorge Capitanich said
plummeting tax revenues from an economy in a tailspin were to blame.

DEVALUATION WILL AFFECT FOREIGN BUSINESSES

The effects of Argentina's economic woes will be felt throughout the Americas,
crippling the Mercosur trade bloc and jeopardizing plans for a
hemispheric free
trade area, AFP reports analysts in the US said.  The first victims will be
neighboring Brazil and Uruguay, which will likely endure tighter foreign credit
at a higher interest rate, as well as slower economic growth, according
to the
analysts, although the US Treasury Department has said there is no
evidence of
contagion to other countries.

To deal with the Argentine peso devaluation, however, the Uruguayan government
announced late on Friday that it was accelerating its own currency devaluation
to 2.4 percent a month, and allowing it to float on a broader band.

Other countries have become concerned as the crisis has begun to affect foreign
businesses, including US banks, CNN notes. On Saturday, US President
George W.
Bush called the leaders of Mexico and Uruguay to discuss Argentina,
aides said.

Meanwhile, notes the Financial Times (p.1), European governments are putting
strong pressure on Argentina to protect their companies from the
devaluation of
the peso, in the first example of international concern that the crisis
may be
spreading.  As Argentina's Congress prepared to pass the "public
emergency law"
to formally end the decade-old peg to the US dollar, Spanish and French
companies lobbied to avoid massive expected losses at their Argentine
subsidiaries.

Spanish Prime Minister José María Aznar called Duhalde to remind of the $1
billion contribution made by Spain to an international bailout package in
December 2000, and Argentine media reported that the French government
sent a
letter through diplomatic channels to the Argentine foreign minister
urging him
to do "everything in your power to look after our companies, who have invested
much in Argentina."

Duhalde's government said it would "not cede" to the pressures from Europe.
Duhalde was reported to have instructed his cabinet to ignore lobbying from
foreign companies for special treatment.

To soften the blow of the devaluation for the middle classes, which have brought
down the previous two governments, Duhalde's administration has promised to
convert dollar debts under $100,000 into pesos.  As a result, many
banks' assets
will be converted into devaluing pesos, while their liabilities will
remain in
dollars. The banks have estimated the initial cost of that measure at $10
billion to $20 billion.  "In effect, we are being asked to bear the full brunt
of a devaluation," a Spanish banker said.

Argentina has said banks might be compensated with money that government hopes
to collect from an emergency tax on petroleum exports, though the
details of how
that would work weren't clear, notes the Wall Street Journal Europe (p.1).


WILL THE I.M.F. SHARE THE PAIN?

Meanwhile, reports the Asian Wall Street Journal, Argentina's default is posing
some prickly questions about whether one of its biggest creditors-the IMF-is
going to be paid.  Duhalde, who took office last Wednesday 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.

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.

"I don't anticipate that Argentina will go into that class," says
Michael Mussa,
who was the IMF's chief economist until June and is now with the
Institute for
International Economics. "If Argentina has a sensible economic program,
the fund
will reopen its lending window fairly soon."

But many in the private sector-particularly foreign bondholders who face certain
default-insist the IMF should share their pain. Some say emergency aid packages
that the IMF administered to Argentina over the past year allowed the country's
long recession to deepen, ensuring that bondholders' losses will be more severe
when the country renegotiates its debts in coming months.

"Many people in the market felt the IMF should have backed off Argentina
over a
year ago and allowed Argentina to deal with its difficulties," says Francis
Rodilosso, a portfolio manager at Van Eck Capital in New York. "Our
feeling is
that there should be equal treatment across all creditors, including
multilaterals."

Others on Wall Street say the IMF is guilty of doing too little for Argentina,
noting the country's long financial crisis went into high gear after the fund
refused to disburse a $1.3 billion loan in December.  "The multilaterals have
some responsibility in pushing Argentina over the edge and in building
up this
whole myth that is called Argentina," says Walter Molano, an economist
at BCP
Securities Inc. in Greenwich, Connecticut.  "Argentina was their star student
and was being sustained in that star position."

An IMF spokesman wouldn't comment on Argentina's status as a debtor but insisted
the Fund was prepared to help.  "It is the government's first day in
office, and
obviously too soon to expect there to have been an exchange of view on policy,"
David Hawley 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."

El Cronista (Argentina) also reports, noting that there are signs that
the Fund
is listening to its critics.  Over the last 18 months, IMF Managing Director
Horst Köhler has spoken of cutting support to countries that don't
follow sound
policies.

Now that Argentina, in the midst of a political whirlwind, has defaulted
on its
debts to creditors the world over, those creditors face a difficult
choice, the
New York Times (1/6, Sec.3 p.1):  whether to grab its assets or just
wait for
the offer of a repayment deal.  Both options are risky, and Argentina
has had
enough problems scrambling to form a government, let alone agreeing on a policy
for dealing with lenders.  The chaos has left bankers, lawyers, and academics
alike wondering whether matters could have taken a better turn had there
been a
third way.

In particular, says the story, the IMF recently suggested offering
countries the
same sort of bankruptcy reorganization procedures, through an international
tribunal, that are available to companies and municipalities in the US.

In a separate story, the New York Times (1/6, Sec.4 p.4) reports that in a
speech on his first day as president, Argentina's Eduardo Duhalde's
words could
be read as a condemnation of a broad economic model, the one sold by Washington
all over Latin America that consists of deregulated markets, privatized state
businesses and liberalized trade rules for once-closed economies. 
Regardless of
how long he lasts in office, Duhalde has already raised questions sure to
complicate American relations with Argentina and, perhaps, other Latin
countries:  What is the responsibility of the US for the economic
meltdown and
the shadow it casts on Argentina's political future,?  And what responsibility
does it have for getting the problems fixed before they spread to other Latin
countries?

An op-ed in the Washington Post (1/6, p.B7) by David J. Rothkopf
criticizes the
role of United States-and particularly Treasury Secretary Paul
O'Neill*in the
Argentina crisis.  There are many steps the US could have taken, including
simply a visible, clearly articulated leadership role, that might have
stabilized a situation that has now produced five Argentine presidents
and two
weeks and scores of dead and hundreds of wounded in rioting.  Now the US
is in a
recession, and there is no stimulus package that can work.

O'Neill can argue that the IMF does not work and that we should not send good
money after bad, says Rothkopf.  But he cannot do so and offer no alternatives
to address these issues.
                                                                        
       
                                                                        
       
                                                                        
       
                        



TURKEY'S REFORMS AIM TO WIN $16 BLN I.MF. LOAN.

The Turkish Parliament on Friday adopted a law reducing scope for
corruption in
public procurement, in the country's latest effort to win a $16.3
billion loan
fro the IMF, reports the Financial Times (p.2).  The law, which
introduces a
more efficient and transparent procurement system in January 2003, is
one of a
handful of structural reforms that are preconditions for the Fund's
board to
approve a three-year standby agreement for Turkey.

In other news, the Anadolu news agency report that the World Bank and
the IMF
want the Directorate General of Incomes changed into an independent Incomes
Department like in the US.  Sources said yesterday that the opinion of an
independent incomes department, independent tax department had firstly
been put
forward during the tax department restructuring works carried out by Finance
Ministry and World Bank. World Bank experts had said that an independent
structure should be granted also to the tax department for transition
into a
more concrete system in field of taxation.

Their opinion about an independent incomes department was then also
adopted by
the IMF, which made the same requests during the talks on the new
standby deal,
saying the Directorate General of Incomes should be restructured for an
effective fight against tax loss and evasion.