[stop-imf] Race to repay IMF driven by political concerns

[Robert Weissman]

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Globe and Mail

Race to repay IMF driven by political concerns
Argentina, Brazil making strong statement

By BARRIE MCKENNA

Tuesday, December 20, 2005 Page B12
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WASHINGTON -- The International Monetary Fund's biggest challenge used
to be getting troubled borrowers to honour their debts.

But in Latin America, at least, countries are suddenly stumbling over
each other to repay ahead of schedule the billions of dollars they owe
the Washington-based lender of last resort. Put it down to a combination
of improving economies and burgeoning Latin American independence.

Venezuela's populist President Hugo Chavez has even floated the idea of
creating a Latin American development bank -- a "Bank of the South," as
he calls it -- to wean the region off foreign cash.

Mr. Chavez wants his South American neighbours to repatriate loans from
rich countries, which he said "manipulate, lend and make a lot of money
off our resources."

The move by Argentina and Brazil to repay more than $25-billion (U.S.)
they collectively owe the IMF is a sign the region is coming back from
the economic malaise of 2000-01. Thanks to rising commodity prices, the
economies of both countries are growing rapidly.

Paying off the IMF is also a powerful statement of political
independence by the leftist leaders of both countries -- President
Nestor Kirchner of Argentina and President Luiz Inacio Lula da Silva of
Brazil.

Mr. Kirchner, in particular, has been locked in a fierce battle of wills
with the IMF since he took office in 2003. The Argentine government has
repeatedly rejected calls by the IMF to negotiate with disgruntled
foreign bondholders, who refused to go along with Argentina's offer of
30 cents on the dollar, longer maturities and lower interest rates. The
government has also steadfastly refused to relent to the IMF's demand
that it lift a freeze on the electricity rates charged by largely
foreign-owned utilities, in spite of soaring energy prices.

"Argentina has challenged the international community much more than
other countries have dared to," said Peter Hakim, president of the
Inter-American Dialogue, a Washington-based think tank.

With the IMF out of the picture, the disgruntled bondholders and
utilities will have less leverage to get the Argentine government to
soften its hard line.

Argentina, the IMF's third-largest borrower, announced last week that it
would tap its central bank reserves to repay roughly $10-billion it owes
the fund. Mr. Kirchner said the move would save Argentina nearly
$1-billion in interest. What he neglected to say is that Argentina may
have to pay even higher interest rates on the bonds it issues to
replenish its depleted reserves, which stand at $27-billion.

"This is much more about politics than economics," Mr. Hakim said.

And Argentina isn't giving up completely on foreign lenders. Argentina
is in talks with the World Bank for $3-billion in loans to finance
infrastructure projects.

Venezuela has also become a major buyer of Argentine bonds, and Mr.
Chavez has suggested it would continue to buy more in the months ahead.

Argentina -- a major exporter of energy, cars and farm products -- grew
at an annual rate of 9.2 per cent through the first nine months of the
year. It grew 9 per cent last year and 8.8 per cent in 2003.

Also last week, Brazil announced it would repay about $15.5-billion
worth of IMF loans.

Unlike Argentina, Brazil's government reserves have shot up on the
strength of soaring exports. Mr. Hakim said Brazil's repayment appears
to be based more on pragmatic economic considerations than politics.