[stop-imf] Argentina defaults on IMF Payments

[Robert Weissman]

http://www.washingtonpost.com/ac2/wp-dyn/A51564-2003Sep9?language=3Dprinter
washingtonpost.com

Argentina Defaults On IMF Payment


By Jon Jeter
Washington Post Foreign Service
Wednesday, September 10, 2003; Page A13

SAO PAULO, Brazil, Sept. 9 -- Argentina defaulted on a $3 billion debt
payment to the International Monetary Fund today, and President Nestor
Kirchner said the country would not repay any outstanding debts to the
organization unless a broader, three-year agreement with the fund is reache=
d.

Negotiators for the IMF and Argentina have been working for weeks on a
pact that would enable Argentina to reschedule nearly $13 billion in
loan payments to the IMF. But Argentina has balked at the IMF's
insistence that the country must compensate privately owned banks for
money lost in the economic collapse and currency devaluation that began
in the final months of 2001, and allow private utility companies to
increase consumer rates, which have been largely frozen since then.

Officials for both sides and World Bank President James D. Wolfensohn
have indicated that an agreement is imminent. But negotiators had not
reached an agreement by midnight tonight, the deadline for Argentina to
repay the first installment on its $13 billion in debt.

Foreign investors have said that a new agreement is critical for both
sides, allowing Argentina, which last year declared the largest public
debt default in history, to begin negotiating a rescheduling of private
debt on which it defaulted last year. That would allow Argentina to
regain access to international financial markets, bolstering its
economic recovery.

But Kirchner, who was elected in May, has said that he would stay away
from any deal he found unacceptable. Interior Minister Anibal Fernandez
said Monday that while Argentina would like to sign a deal, the country
"will not accept conditions that imperil the incipient Argentine
economic recovery."

Wolfensohn said Monday that he expected a deal within days, but IMF
negotiators in Buenos Aires extended their stay to resolve outstanding issu=
es.

The default Tuesday has no immediate consequences and most economists
and political observers believe that the country will still reach an
agreement with the IMF, providing Argentina with an opportunity to make
good on the $3 billion payment. Argentina is not seeking to borrow more
money from the IMF, only more time to repay its debts.

But investor confidence could suffer if the impasse is not broken soon,
analysts say, and the negotiations are scheduled to be a key topic of
discussion at a meeting this week in Paris of the IMF's biggest
shareholder nations. The Group of Seven finance officials were
instrumental in persuading the IMF to extend an interim agreement to
Argentina earlier this year.

Argentina has received crucial support from the Bush administration in
its efforts to renegotiate debt.

"It's time for the IMF to be more flexible and reasonable with
Argentina," said Assistant Secretary of State Roger Noriega, the top
U.S. diplomat for Latin American affairs. "The U.S. believes the IMF
must show more flexibility to help Argentina put its house in order."

=A9 2003 The Washington Post Company

______________________________
Sept. 10, 2003, 12:41AM

Argentina defaults on IMF loan
By KEVIN GRAY
Associated Press

BUENOS AIRES, Argentina -- Argentina defaulted on a $2.9 billion loan
owed the International Monetary Fund on Tuesday, complicating efforts to
restore its standing with the world financial community.

It was the second time this year the nation failed to make a payment to
a multilateral lender. It also missed a deadline on a $681 million
payment to the World Bank in January.

A government official, speaking on condition of anonymity, said the
payment wasn't made by the close of business Tuesday but that
negotiations with the IMF were continuing.

The missed payment is not likely to immediately affect the economy but
could further damage investor confidence at a time when the country has
shown signs of beginning to emerge from a financial crisis that began in
2001.

Argentine officials said they were not willing to tap the country's
$13.5 billion in reserves to make the payment without assurances of a
new long-term deal. They aren't seeking any fresh loans, but a rollover
of about $12.5 billion the country owes the IMF over the next three
years -- a step that would give the economy significant breathing room.

Officials had been negotiating with the IMF for months to secure the
long-term agreement. But talks appeared to stall last week after the IMF
insisted the government implement deeper economic reforms.

Argentina needs a new agreement to restructure the $103 billion in
public debt it defaulted on in December 2001 at the height of its
worst-ever economic crisis. That decision cut off badly needed external
financing for both the government and local companies, leaving most
businesses to rely heavily on cash instead of credit.

In recent months, the economy has stabilized after a turbulent period
that forced a currency devaluation and a $143 billion debt default
overall.

Earlier this year, the IMF's executive board approved a $320 million
loan installment as part of an interim program. That approval came
despite Argentina's failure to meet several economic benchmarks.

As part of a new accord, the IMF wants Argentina to overhaul the banking
sector, compensate banks for losses and increase public utility rates
that were frozen since last year's currency devaluation.

President Nestor Kirchner has been outspoken about giving priority to
Argentina's domestic needs, dismissing IMF demands that the country
increase budget savings for those measures.

During the months of talks, Argentine and IMF officials have sought to
mend a relationship that soured over the financial crisis. An IMF
decision to suspend an emergency aid program months before the economy
unraveled had forced the country into default.