[stop-imf] IMF to Argentina: More Blood, Please

[Robert Weissman]

No, Enron-WorldCom-etc. notwithstanding, the power of market
fundamentalism persists.

The latest evidence: A report from a panel of advisors to the IMF
recommending more austerity as the solution to Argentina's financial
crisis. The report is at:
http://www.imf.org/external/np/sec/nb/2002/nb0280.htm#report

Below: Horst Kohler's statement receiving the report, and an excerpt
from the World Bank's Press Review (July 30) on news coverage of the
report.

--
Robert Weissman

July 29, 2002
IMF Managing Director Köhler Welcomes Independent Advisors' Report on
Argentina

International Monetary Fund Managing Director Horst Köhler issued the
following statement today on a report by the Panel of Independent
Advisors on Argentina's monetary system:

"We are extremely grateful to the Panel of Independent Advisors for its
report. The views and conclusions of the panel will be very helpful to
the Argentine authorities and to the Fund as we continue our discussions
toward an economic program for Argentina that will restrain inflation,
restore macroeconomic stability, and put the economy on a path of
recovery.

"The report underlines the need for a credible monetary anchor that
gives the authorities the clear capacity to limit the creation of peso
liquidity to the demand to hold pesos. The report also emphasizes that
adequate monetary control cannot be exercised without an early and
permanent solution to the problem of the court-ordered releases of
deposits (the amparos).

"The report cautions that restoring macroeconomic stability will also
depend on ensuring central bank autonomy, implementing a strong fiscal
program, ending the issuance of provincial quasi-currencies, and working
with the banking system as a full partner in Argentina's recovery.

"We have already planned to continue our dialogue with the authorities
in all these areas in the period ahead, with a view to putting these
policies in place, and moving toward a Fund-supported program as soon as
the authorities are in a position to ensure their implementation," Mr.
Köhler stated.




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"Wise Men" Say Argentina Must Continue Belt-Tightening
================================================================
The International Monetary Fund issued a report by a panel of so-called
wise men that backed up the demands the IMF made on Argentina to restart

aid, and reiterated it would only resume lending once the economic
conditions were put in place, the Wall Street Journal reports. The panel

consisted of Andrew Crockett, general manager of the Bank for
International Settlements, John Crow, former governor of the Bank of
Canada, former Bank of Spain Governor Luis Angel Rojo and Hans
Tietmeyer,
former Bundesbank president.

The panel said on Monday that the country must make still more
sacrifices
to reach economic stability and its priority must be to resolve the
banking sector crisis, reports Agence France-Presse.   "Sacrifices will
be
needed, probably beyond those with which society has already come to
terms," the panel is quoted as saying.

Although the panel fell short of presenting a road map to crisis-torn
Argentina in its report to the IMF and the government, which have been
negotiating the disbursement of $9.5 billion in loans, Economy Minister
Roberto Lavagna said the report was "a boost to culminating the
negotiations" between the Fund and the government.

IMF Managing Director Horst Köhler welcomed the group's conclusions in a

separate statement, underlining the importance of Argentina's adoption
of
a "credible monetary anchor" to prevent hyperinflation.

The panel, which was appointed earlier this month in a rare move to
present an independent set of recommendations to a crisis-hit IMF
borrower, said Argentina's goal of setting a formal inflation target is
achievable, but that a number of conditions would first have to be met.
These included the restoration of a functional banking system, "durable
fiscal discipline" and an independent central bank capable of carrying
out
its responsibilities.  Köhler said the Fund was prepared to establish a
new loan program for the country "as soon as the authorities are in a
position to ensure" the implementation of credible monetary and fiscal
policies.

Also reporting, the Financial Times notes that the panel of experts
backed
the IMF's call for Argentina to refrain from using its foreign exchange
reserves to buy out bank depositors in its struggle to resolve the
country's economic crisis.  The IMF has said that the restrictions on
the
banking system should be lifted but has opposed the use of the country's

dollar reserves to buy out bank depositors who want to change their
pesos
into dollars—a plan suggested by the Argentine Central Bank.  On this
point, the report supported the IMF's view.  "A rising, not declining,
level of reserves would be more conducive to the restoration of
confidence," it said.

But the Argentine government said that the report had backed it in its
other main dispute with the Fund—an IMF plan forcibly to replace bank
deposits with government bonds.  The government recently tested its
preferred plan, a voluntary swap, with only limited success.  But the
report was vague about which solution the panel preferred, saying only
that deposit-holders should be offered a "meaningful alternative."

Lavagna presented the report as an affirmation of the government's
policies.  "This administration is going to continue in the same
direction," he said.  "The fact there was no disagreement from the panel

of experts supports the idea of moving ahead with the economic program."

AFP notes that the "wise men" also said the inflationary impact of the
peso's devaluation had yet to run its course, and that the full extent
of
financial losses in the economy had yet to be realized.

In other news, Dow Jones notes that Argentine Cabinet Chief Alfredo
Atanasof said on Monday US Treasury Secretary Paul O'Neill should rest
assured that any new financial assistance extended to Argentina would
not
"go to any bank account in Switzerland."  Rather, any new aid to
Argentina
would be distributed to an estimated two million jobless and retirees
struggling to survive the country's four-year recession.

The statement followed a television appearance on Sunday by O’Neill in
the
US, during which he had said that during his scheduled visit next week
to
Brazil, Uruguay and Argentina, he would not be toting any new financial
assistance package for the region's many cash-strapped governments.
"These are important friends and allies of the US," O'Neill had said.
"Critically, they need to put in place policies that would ensure that
as
assistance money comes, it does some good, and it doesn't just go out of

the country to Swiss bank accounts."