[stop-imf] Misc reports: IMF fails on debt cancellation; Iraq debt; IMF and Argentina

[robert weissman]

World Bank's Press Review
Subject: Press Review for Oct. 3, 2004: Debt Relief Plan Eludes IMF
[excerpts only]

Today's Headlines: Sunday, October 3, 2004

Debt Relief Plan Eludes IMF Group; Issue Likely to Be Resolved Next Year

Paris Club Divided Over Iraq Debt Forgiveness

IMF Says Court Fight Over Argentine Bonds May Get Nasty


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Debt Relief Plan Eludes IMF Group; Issue Likely to Be Resolved Next
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Rich nations failed to agree at meetings this weekend on a plan for
canceling the debts the world's poorest countries owe to the World Bank
and International Monetary Fund. But top US and British officials voiced
confidence that an accord will be struck next year to dramatically expand
debt relief for several dozen nations in sub-Saharan Africa, Latin America
and Asia, reports The Washington Post.

The IMF's top policy-making committee issued a statement yesterday
pledging only "further consideration" of large-scale debt forgiveness for
poor nations, underlining that sharp differences remain over major
problems such as how to cancel debts without hurting the fund and the
bank. Nevertheless, Gordon Brown, Britain's chancellor of the exchequer
and a leading debt-relief champion, contended that the meetings had helped
to advance the cause of extending debt reduction for poor countries well
past the current levels of about 50 percent. "There's a growing consensus
that the next step is (to give poor countries) up to 100 percent debt
relief," Brown said at a news conference, adding that although "there's a
lot of work to be done," it concerns "the detail" rather than the
principle, and is likely to be resolved in 2005. Britain, he said, chairs
the Group of Seven major industrial nations next year and will host the
annual summit of leaders from those countries plus Russia.

The Bush administration, which has been working on a debt-relief proposal
that departs from Brown's, also thinks that 2005 offers a particularly
promising time to forge a deal, said a senior US Treasury official who
briefed reporters on condition of anonymity. He noted that negotiations
are scheduled then to discuss how much rich countries should contribute
over the following three years to the World Bank's lending program for
poor countries. The administration has used such negotiations as leverage
to change bank policies on previous occasions.

Moreover, it is far from clear how the gap will bridged between the
approaches being promoted by Washington and London. Brown's plan would
involve billions of dollars in firm commitments by wealthy nations to
ensure that the World Bank has the funds to keep providing aid. The
commitments envisioned in the US plan are much flimsier, and Washington's
proposal also includes the idea of replacing many World Bank loans with
grants, which some critics fear would weaken the bank.

Reuters meanwhile explains that Brown has proposed a revaluation of the
IMF's massive gold stocks, which would not involve sales, as a way of
raising additional cash for debt relief. The IMF's 103 million ounces of
gold is one of the biggest bullion caches in the world. Brown denied his
proposal to revalue IMF gold had run into opposition. He said the Group of
Seven had agreed on Friday to examine the idea and voiced optimism it
would succeed. An official communiqu? from Saturday's International
Monetary and Financial Committee meeting made no mention of Brown's gold
revaluation plan nor of a 100 percent debt write-off.

Reuters also notes that Brown's [gold] proposal ran into resistance on
three grounds: some national treasuries of IMF shareholder countries would
have to book the entire write-down in the year of sale; the likely bearish
impact on precious metals markets; and the permanent reduction of IMF
assets. South African Finance Minister Trevor Manuel said on Saturday the
proposal to revalue the gold holdings should involve both producers and
buyers. Canadian Finance Minister Ralph Goodale on Friday dismissed the
idea as a "non-starter".

Agence France Presse meanwhile reports the IMF committee in its statement
took aim at three factors clouding the horizon for the world economy,
which is projected to expand five percent this year before losing steam in
2005 in the face of oil market volatility. It said in effect that the
United States had to take steps to reduce its gaping budget deficit, which
tends to drive up interest rates as Washington borrows money to finance
the shortfall, while Europe and Japan needed to implement macroeconomic
reforms to boost growth. A third problem highlighted by the committee was
the need for greater currency flexibility in Asia, notably China where a
peg with the dollar is seen as undervaluing the yuan and thereby
distorting regional trade. The three factors have contributed to
imbalances in the world economy, with the United States and Japan growing
about twice as fast as the eurozone this year.

Reuters also notes China, which for the first time joined a meeting of top
officials from the Group of Seven countries this week, has no immediate
plans to enter the rich nations' club, its finance minister said on
Saturday. The minister said Beijing attended the G7 gathering because of
its rising economic power, a comment that appeared aimed at dispelling
speculation China was invited only because Western powers wanted to
lecture it on currency matters. During meetings in Washington, China
reiterated its pledge to move toward a more flexible currency but gave no
timetable for relinquishing the yuan's tight peg to the US dollar. Reuters
also reports a G7 source said on Saturday the Group of Seven will not
impose a deadline for doing so.


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Paris Club Divided Over Iraq Debt Forgiveness
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A weekend gathering of international finance ministers failed to bring
them closer to an agreement on forgiveness of Iraqi debt, reports Dow
Jones.

Last year, the Paris Club of sovereign creditors set a goal of deciding
how much of Iraq's debt to write-off by the end of 2004. But with just
three months left in the year, the major players - the US, France, Germany
and Russia - seem further apart than ever. IMF officials have been careful
to avoid public recommendations of how much debt forgiveness Iraq needs to
reach a sustainable financial position. Fund economists have prepared a
debt analysis, which hasn't been published, outlining projections for
growth and other economic indicators under given amounts of debt relief.
The IMF estimates Iraq owes a total of about $120 billion, to lenders
around the world.

The New York Times notes that as the IMF put off any decision on a
proposal to forgive 100 percent of the debt of the world's poorest
countries, it asked that a study be prepared by year's end that will
present the best alternatives for eliminating the debt. Behind the scenes,
France and Germany have been holding out against the United States' demand
for a 90 to 95 percent forgiveness of Iraq's debt, saying that Iraq must
repay some of its debts when it becomes a successful oil-producing nation
in the future. The two European countries suggested that only half of
Iraq's debt to them be forgiven, but the senior US Treasury Department
official, who asked not to be identified, said late on Friday night that
"anything like 50 percent debt forgiveness is unworkable.? The IMF plan is
neutral on whether the Paris Club should reduce the debt by 50 percent or
95 percent, said an IMF official, who also asked not to be identified.

The Washington Post meanwhile explains that the issue of debt forgiveness
for Iraq is different from the questions surrounding poor nations because
Iraq owes almost all of its debt to individual governments while the vast
bulk of the debt burdening poor nations is owed to the IMF, the World Bank
and other multilateral lenders. But politically, the two issues have
become linked, with France and Germany in particular questioning why Iraq
should get much greater relief than countries whose people are much
poorer. Resolving the poor-country debt problem would help address that
objection, although US officials assert that the two issues should be
treated separately.

In other developments, The Washington Post notes that Iraqi Airways has
begun operating international flights for the first time in 14 years. At
the moment, the airline has only two pilots who are authorized to fly
737s. It will take time for the airline to train new pilots. Before Iraqi
Airways resumed international service, Royal Jordanian had a monopoly on
commercial passenger flights between Amman and Baghdad, a ride that lasts
about an hour and 20 minutes.


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IMF Says Court Fight Over Argentine Bonds May Get Nasty
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Argentina has managed so far to stymie its foreign creditors in
international courts but some creditors are adopting "potentially
far-reaching" strategies to recover the $88 billion or so owed to them,
Dow Jones reports the International Monetary Fund said over the weekend.

In a report to its governing committee, the IMF said Argentina has
stonewalled its foreign creditors so successfully that many of them no
longer try very hard to enforce court judgments in their favor. It
described a "lull in enforcement activity" by creditors who "may feel
somewhat frustrated by the inability to find assets available for
attachment."

But some creditors are just getting tougher, the IMF said. It cited a
lawsuit filed in US federal court in June by a businessman named Ottavio
Lavaggi, seeking class-action status for himself and about a million other
holders of Argentine bonds. The suit asserts "willful, wanton, and
malicious" conduct by the Argentine government and seeks not only the
repayment of the bonds but also punitive damages "in excess of $100
billion." The pursuit of punitive damages is a novel strategy for
plaintiffs in cases involving sovereign-debt defaults. The IMF called the
suit "yet another example of aggressive strategies intended to raise the
stakes in sovereign-debt litigation." That case, and a few others like it,
could have "far-reaching" effects, the IMF said.

The IMF, reporting to its governing committee, said foreign bond holders
have had little luck so far in legal proceedings against Argentina. In New
York courts, some creditors spent "extensive time contesting the scope of
information that Argentina should provide on the location of its
commercial assets" but the effort yielded "rather limited information to
the judgment creditors." Still, the number of lawsuits against Argentina
has been growing. "Notwithstanding the apparent difficulty in enforcing
court judgments against Argentina, five additional class actions have been
filed in New York court since February 2004, bringing the pending class
actions to 15," the IMF said. Only one of those lawsuits has actually
achieved class-action status, but even that case is "stalled."

EFE News Service meanwhile notes that Brazil interceded Saturday on behalf
of Argentina in a meeting of the International Monetary and Finance
Committee, according to a high official of the Brazilian government who
asked not to be named. The source explained that his government asked that
the Committee's final communiqu? be less drastic with reference to
Argentina. The IMF document points out that this body "views positively"
the improvement in Buenos Aires' economic positioning since 2002, as well
as "Argentina's efforts to carry out an ample and sustainable
restructuring of its debt, and hopes for a rapid conclusion of the
process." The document also insists that the Argentine government
"decisively address program areas still awaiting structural modifications,
that it complete an ample and sustainable restructuring of the debt, and
that it guarantee a fiscal framework that is sustainable in the medium
term." These recommendations are a good deal less brusque than those
contained in the final communiqu? of the Group of Seven industrialized
nations (G7) formed by the United States, Germany, France, Italy, Japan,
Britain and Canada, after their meeting Friday in Washington.

Reporting on the G7 communiqu?, Agence France Presse writes the Group of
Seven called on Argentina Friday to reach an agreement with its holder of
bonds from its spectacular 2001 default, and to make economic reforms
sought by the IMF. The G7 statement, at the conclusion of a meeting of its
finance ministers and central bankers, came as Argentina remained
deadlocked with the IMF over economic measures and with most of its
bondholders. "Argentina's key challenges remain structural reforms,
building a sound fiscal framework, and achieving high creditor
participation in a sustainable debt restructuring," the statement said.
The IMF recently gave Argentina a one-year extension on repaying $1.1
billion in debt, but is pressing for more reforms and a better deal with
bondholders before releasing new credits to the South American nation.
Buenos Aires has proposed to pay off the debt at 25 percent of face value,
a proposal that most creditors have rejected so far.

In a separate piece, EFE reports Argentina collected 7.9 billion pesos
($2.6 billion) in taxes last month, a 30.4-percent increase when compared
to the same month in 2003, the AFIP tax revenue agency reported. The AFIP
said Friday that September's numbers were 5.8 percent off from August
marks, when revenue from tax collections totaled 8.5 billion pesos ($2.8
billion). The increase in tax revenues is essential for economic policy in
Argentina, since earlier this year Argentina made a commitment to the
International Monetary Fund to achieve primary savings equal to three
percent of GDP apart from interest payments on the national debt.