[stop-imf] IMF Mtg - few answers in tough times

[Robert Weissman]

Dow Jones Newswires
September 30, 2002

IMF Mtg Gives Emerging Mkts Few Answers In Tough Times

By Charles Roth
Of DOW JONES NEWSWIRES

WASHINGTON, Sept. 30 (Dow Jones)- Officials from emerging markets
attending
the annual International Monetary Fund meetings this weekend seeking
relief
from turbulent markets and slow global growth, might well have stayed
home.

Finance ministers from the Group of Seven leading industrial nations
declared
Friday they are "committed to sound economic policies and structural
reforms." But they didn't indicate much eagerness to provide new
stimulus to
their flagging economic recoveries.

With the U.S., European Union and Japanese engines of global growth
stuck in
first gear, many emerging-market officials ended up arguing for the need
to
develop their own domestic sources of growth. But others stressed the
need
for consistent policies and help for crisis-wracked countries from
multilateral lenders, particularly the IMF.

Nor did officials from emerging markets speak with one voice on the
necessity
of establishing ways to avoid messy debt restructurings.

Argentine Economy Minister Roberto Lavagna launched a "clarification
campaign" in the hope of gaining G7 support for a long-delayed IMF deal
with
the crisis-wracked country, according to Armando Torres, Lavagna's
spokesman.

Lavagna is scheduled to meet with U.S. Treasury Secretary Paul O'Neill
Monday
morning, but he may not want to get his hopes up. The G7 finance
ministers,
in their statement, said they are "ready to support Argentina, through
the
IMF, in the context of a sustainable program."

Despite the severity of the crisis - the IMF expects Argentina's economy
to
contract 16% this year - negotiations with the interim government of
President Eduardo Duhalde have dragged on since January. Consensus on
reforms
among the various branches of the Argentine government, which last
December
imposed capital controls and defaulted on its debt, are needed before a
"first-stage" stabilization program can be established, IMF officials
have
said.

Anoop Singh, who leads the IMF's negotiations with South America's
second-largest economy, said Saturday the Fund is "resolved to put a
program
in place as soon as possible." But, he added, "we're not quite there
yet."

"I do expect there will be a program sooner or later, hopefully sooner,"

Singh said, adding that the IMF is "seeking complete agreement with the
Argentine authorities."

Brazil was also a hot topic at the meeting, given fears that the country

might slide into a debt restructuring. Investors, fearful a leftist will
win
the Oct. 6 presidential elections, have hammered the country's currency,

which has lost 40% of its value so far this year. That makes servicing
dollar-linked debt far more onerous.

Stanley Fischer, the IMF's former first deputy managing director, said
Friday
that the continued declines in Brazilian assets make "the debt
trajectory
hard to sustain." But, he noted, a debt restructuring "is not
inevitable."

Arminio Fraga, Brazil's central bank chief, said it was "wrong to
extrapolate" from current currency weakness the debt dynamics. The real
($1=BRL3.875) is severely oversold, and asset values generally are at
recovery levels, he said.

He added that the economy is growing around 1.5%, the banking system
remains
healthy and Brazil's institutional framework sound. Furthermore, all the

candidates understand the problems facing Brazil and the global economy,
and
they will seek to avoid making any policy missteps, Fraga said.

The central banker also pointed out that the next administration will
have an
amply filled vault with which to service its debt following the IMF's
recent
extension of a record $30 billion package, conditions to which all the
main
candidates have agreed.

The IMF, and by extension the U.S. Treasury, came under some fire for
the way
in which it handled that package. Guillermo Ortiz, the Bank of Mexico's
governor, said that repeated U.S. statements that official funding would
be
tightened to reduce so-called "moral hazard," followed by the about-face
with
a such a huge amount of money, rattled emerging-market investors.

Ortiz said the push by the G7 and IMF to insert collective-action
clauses in
future sovereign-debt issues, or to amend the IMF's charter to include a

statutory approach on debt workouts similar to U.S.'s Chapter 11
bankruptcy
code, have also raised risk aversion.

He and Mexican Finance Minister Francisco Gil Diaz both rejected any
such
moves, arguing that they could raise the cost for borrowers. Brazil's
Fraga
was open to discussing the idea, but also cast doubt on the necessity of
the
measures: "Markets find ways to solve these issues on their own."

Asean Looks Inward, Russia Rides Oil Price Rise

Although officials from the Association of Southeast Asian Nations
didn't
have much to say about collective clauses or debt-restructuring
mechanisms,
they did talk up the idea of fostering a regional bond market and
domestic
demand as ways to wean the region from its over-reliance on exports to
the
U.S. to fuel their economic growth.

Compared with Latin America, which the IMF expects will contract 0.6%
this
year and grow 3% in 2003, Asean members Indonesia, Malaysia, Philippines
and
Thailand should see their economies expand enviably, growing 3.6% this
year
and 4.2% next year.

Thanks mainly to strong oil prices and solid budget surpluses, Russia is
also
expected to far outshine Latin America in the foreseeable future. The
IMF
reckons the country will post 4.4% growth this year and 4.9% in 2003.

But John Odling-Smee, director of the Fund's Russia office, cautioned
the
country against loosening its fiscal policy too much.

Russian Finance Minister Aleksei Kudrin said authorities are planning
for "a
small reduction" in the federal budget surplus in 2003 to sustain
economic
growth.

"For a number of years the pursuit of responsible fiscal policy has
enabled
us to service our external debt almost without resorting to external
borrowing, and to achieve a substantial improvement in
debt-sustainability
indicators," Kudrin said.

"In 2003, external-debt payments will reach a peak of approximately $17
billion. We do not anticipate any major difficulties in servicing this
debt,
although we intend to borrow in both domestic and foreign markets,"
Kudrin
added.

Unlike his counterparts in Mexico and Brazil, he was open to the idea of
a
contractual approach to sovereign-debt workouts, but he expressed doubt
that
it could stop minority of creditors from blocking action by a majority.

"To eliminate this possibility, it is necessary to adopt an
international
treaty that makes the decision of the majority binding on all
creditors....
Perhaps this could be done on the basis of a corresponding amendment to
the
IMF Articles," Kudrin said.

-By Charles Roth, Dow Jones Newswires; 201-938-2226;
charles.roth@dowjones.com