[stop-imf] Argentina plans to pay off all IMF debt

[Robert Weissman]

'Goodbye and good riddance'

The economics may be questionable but the decision by Argentina's
president to pay off the IMF has broad public support, writes Oliver
Balch

The Guardian
Monday December 19, 2005


Four years ago, crisis-hit Argentinians took to the streets shouting
"out with them all". Now they have seen part of their wish come true.
In a surprise statement late last week, the Argentinian president,
N=E9stor Kirchner, announced that his government would settle its
outstanding $9.8bn debt (=A35.5bn) with the IMF by the end of the year.

Speaking in front of a packed hall of businessmen, political supporters
and trade unionists, Mr Kirchner blamed the lender for "failed
political regimes and monetary systems".

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"The result has been exclusion, poverty, destitution and the
destruction of our production apparatus", the leftwing president said.

Argentina's relationship with the IMF has been strained since it
defaulted on almost $100bn of foreign debt in December 2001. The
decision caused a huge flight of capital from the country and threw it
into economic and political chaos.

"Goodbye and good riddance", said Buenos Aires' resident Gabriela
Garcia on hearing of the plan to pay off the country's IMF debt lump
sum.

Early this year, Mr Kirchner's administration managed to renegotiate
its debt with the majority of its creditors. The deal saw the country's
overall foreign debt cut from $193bn to $125bn.

As for the $9.8bn owed to the IMF, the government had originally agreed
to pay it off in regular instalments over the next three years.
Instead, parliamentarians will meet this week to agree a one-off
repayment package. The outstanding debt will be paid from Central Bank
dollar reserves.

Argentina's dollar reserves dropped to $9.2bn in the immediate
aftermath of the 2001 crash, but have bounced back to a more healthy
$27bn, thanks larges to high prices for commodities such as soya.
Argentina has posted growth rates of over 9% for the last two years.

Help is also on hand from oil-rich Venezuela, which recently purchased
around $1bn in new Argentine government bonds. Venezuela's firebrand
president, Hugo Ch=E1vez, is reported to have pledged an additional $2bn
to assist Argentina's attempt to rid itself of the IMF.

Although the country will not cancel its membership to the lending
organisation, most Argentinians welcome the prospect of waving goodbye
to the lender's presence in domestic affairs. Like the president, many
blame the IMF's neo-liberal recipe of market reforms and public
spending cuts for the economic crisis.

"We have extricated ourselves from a monster hanging over us. This
debt, although we've said it was illegitimate, is a debt all the same,"
said Estela de Carlotto, a spokeswoman for Grandmothers of the Plaza de
Mayo, an influential human rights group.

The official view from Washington was also positive. The head of the
IMF, Rodrigo Rato, praised Argentina's early repayment but he also
warned about challenges ahead.

"We remain ready to assist the Argentine authorities in any way that
would help them address these challenges," he said.

Behind the scenes, the IMF is no doubt glad to see its major Latin
American liabilities reduced. Earlier last week, Brazil also announced
its plans to settle its =A315.5bn bill with the multilateral lender.

The market reacted less positively to the news from Argentina. Many
analysts interpreted the move as a populist political gesture and a
worrying swing towards future economic unorthodoxy. The Argentine peso
fell to a four-year low of 3.11 against the dollar at one stage on
Friday, before closing the week at 3.03 - a fall of 0.74% on the
previous day.

"Keeping a good faith relationship with the IMF doesn't pay in Latin
America and Kirchner want to signal independence. For investors, that
signals perhaps even less control over populist policies", said
Christian Kopf, an emerging markets expert at DWS.

Some economists are also sceptical about the long-term economic impact
of the decision. Financial experts note that the interest charged by
the IMF is lower than that charged on Argentina's other outstanding
loans.

Concerns have also been raised over the country's ability to maintain
the value of the peso at a time when inflation is running at around
11%. To date, the central bank has been purchasing dollars to keep the
currency stable at around the three pesos mark.

The effective withdrawal of the IMF from Argentina is also a worry for
those bondholders who rejected the government's renegotiation plans
back in February.

Resolving the $20bn held by these creditors had been one of the main
points of contention between the Argentinian government and the IMF.

Foreign companies will also lose an important ally with the departure
of the IMF. The lender has for months been putting pressure on Buenos
Aires to review private utility rates, which remain frozen at a third
of their pre-crisis level.

Mr Kirchner will not be unduly concerned about foreign disquiet. A
weekend poll shows 73% of domestic opinion behind the pay-off.

"There are some big decisions that ought to be taken so that the
autonomy of the people can be regained once and for all," said Luis
D'Elia, a pro-government leader of Argentina's unemployed worker
movement. "This is one of them."

=B7 Oliver Balch is a Buenos Aires-based freelance journalist
specialising in sustainable development and Latin American affairs