[stop-imf] Guardian: IMF needs painful restructuring

[Robert Weissman]

Loan ranger

Leader
Thursday March 11, 2004
The Guardian

Not so long ago, the International Monetary Fund was fond of lecturing
developing nations in financial trouble on the need to undergo harsh
structural reforms in order to qualify for assistance. Now the boot is
on the other foot: it is the IMF that needs to go through a bout of
painful restructuring. Leaderless and now all but rudderless - after a
near humiliation at the hands of Argentina - the IMF is in danger of
becoming irrelevant unless it makes significant changes.

Certainly, the IMF was quick to claim a victory on Tuesday evening after
getting Argentina to make a $3.1bn repayment of debt arrears. But the
details that have emerged since suggest that Argentine president Nestor
Kirchner remains unmoved on his country's offer to repay its foreign
creditors just 25 cents in the dollar on Argentina's outstanding debt.
The creditors want 65 cents in the dollar, and it remains to be seen how
meaningful Argentina's promise of "meaningful" negotiations with the
creditors will be.

The IMF's problem with Argentina is the same as Keynes's famous
wisecrack: owe your bank =A31,000 and you are at its mercy; owe it =A31m an=
d
the position is reversed. In this case, Argentina has debts of $30bn due
for repayment over the next few months. A default by Latin America's
second largest economy would be the last thing that Washington wants in
an election year, with Iraq and Afghanistan still demanding its time and
energy. As a result, the IMF is caught between Washington's desire for
regional quiescence, and demands by the creditors' governments for some
tough love.

The Kirchner administration argues that the needs of the half of
Argentina's population now living below the poverty line should come
before those of its international creditors. In the short term this is
valid, but if Argentina continues to recover then its creditors deserve
some payback. Since the IMF is the architect of much of Argentina's
economic troubles, some will say this is the IMF's chickens coming home
to roost - although those chickens may also roost on every developing
nation that needs help.

The answer, for the large debtor nations such as Argentina, is for the
IMF to issue growth-linked bonds, so that repayments can fit economic
circumstance. But the IMF needs more than this: it needs a better method
of choosing a new managing director, rather than by unedifying
horse-trading, and it must urgently revisit proposals for a sovereign
debt restructuring mechanism so that troubled countries and creditors
can reach agreements. Otherwise, the IMF may find itself needing rescue.

                                          Guardian Unlimited =A9 Guardian N=
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