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Tuesday 16 September 2003


IMF Talks Continue Despite Default on Payment

Marcela Valente

BUENOS AIRES,  (IPS) - Argentina failed to meet a 2.9-billion-dollar payment to the IMF that came due Tuesday, but both sides are confident that an agreement can be reached to prevent the country from defaulting on payments to the multilateral lending institutions, as it did on privately held debt.

''Don't come and try to scare us with talk of chaos and calamity,'' said Argentina's left-leaning President Néstor Kirchner, referring to the warnings from members of the opposition regarding his decision not to make the payment, since there is no guarantee that the agreement in discussion with the IMF will be finalised.

International Monetary Fund (IMF) penalties in cases of default do not come into effect until the end of a lengthy process that can last up to two years, government spokespersons explained.

''Let's have confidence in ourselves,'' urged Kirchner, who received the full support from lawmakers of the ruling Justicialista (Peronist) Party for his decision and for what they have described as the ''dignity and strength'' with which his administration has approached the talks with the IMF.

Despite the government's failure to make the payment, the financial markets were calm, and the exchange rate of the local currency remained virtually unchanged from Monday's level.

The Kirchner administration intends to continue negotiating.

In fact, the IMF mission led John Thorton will stay in Buenos Aires to continue the talks with the aim of a medium-term accord for restructuring Argentina's debt. This would enable this Southern Cone country of 37 million people to strengthen its incipient recovery from a prolonged and devastating crisis, and eventually meet its debt payments.

Argentina owes more than 145 billion dollars, 70 billion of which is comprised of treasury bonds that were declared unpayable in December 2001, when the economic collapse and widespread rioting and looting toppled the government of Fernando de la Rúa halfway through its four-year term.

Alberto Fernández, Kirchner's cabinet chief, confirmed Tuesday that the government did not make the payment because it was not willing to dip into the country's international reserves without having first reached an agreement with the IMF.

''The government does not want to repeat the same steps that triggered the recession,'' he said, referring to previous administrations that committed to strict fiscal spending targets and policies that contributed to deepening the economic crisis.

''We are working well, without any problems,'' and the government is interested in ''living up to its commitments,'' added Fernández.

But he acknowledged that in the talks with the IMF, both sides are sticking to their guns. The Kirchner government ''does not want to postpone Argentina's economic development any longer.

''It is a question of reaching an agreement for a socially sustainable country,'' and one that will allow Argentina ''to live up to our obligations to the international lenders, but without slowing our growth,'' he said.

There appears to be some discord among the government's economic team, however. Economy Minister Roberto Lavagna tried without success to convince Kirchner to pay at least part of the debt servicing that fell due Tuesday.

The president's refusal ignited tensions between the two men, a source familiar with what occurred in their meeting, told IPS, speaking on condition of anonymity.

A rumour that Lavagna might hand in his resignation began to make the rounds Tuesday, although it was refuted by the minister's spokesman, Armando Torres.

The tense situation has forced Lavagna to suspend his participation in the World Trade Organisation (WTO) ministerial conference, which opens Wednesday in the southeastern Mexican resort city of Cancun.

The negotiations for restructuring the debt payments that will come due over the next three years came to a standstill on Friday, when both parties to the talks dug in their heels due to the proximity of the Tuesday deadline.

Kirchner accused the IMF of lobbying in favour of private companies, like banks and the firms that have taken over Argentina's public utilities in privatisation processes, and refused to allow increases in utility rates -- a condition set by the IMF for reaching an accord.

Buenos Aires also refused to meet another IMF requirement -- to expand the compensation paid to banks for the losses they suffered as a result of the measures the government adopted to confront the financial crisis that erupted in late 2001, such as a freeze on deposits.

The banks will receive three billion pesos (around one billion dollars) in compensation for the cost of returning deposit-holders' savings in dollars while they were forced to accept loan payments in pesos.

But the IMF is now demanding that the banks be given another seven billion pesos (2.3 billion dollars) for returning the deposits in dollars to account-holders who secured court injunctions to release their savings from the freeze.

The government also refused to a budget surplus target higher than three percent of gross domestic product (GDP) over the next three years, saying it would only agree to a target above that level for 2004, but not for 2005 and 2006. The IMF has demanded four percent GDP.

The Argentine economy began to show timid signs of recovery in mid-2002, after the late-2001 collapse culminated nearly four years of recession.

No fresh funds have been received from the multilateral lenders, but the country's economic indicators began to improve slightly in June 2002 nonetheless.

Economic authorities forecast 5.5 percent GDP growth for 2003.

Central Bank reserves, which plunged from 35 billion dollars in 1999 to less than eight billion in 2002, have rallied to 13.6 billion, and inflation stands below 10 percent a year.

Against that backdrop, Lavagna defended a commitment to a fiscal surplus equivalent to three percent of GDP for 2004.

But he said that for the following two years, the target should depend on the level of economic growth, the country's success in bringing down unemployment, and the poverty rate, which has soared to more than 50 percent of the population of this once-rich country, Latin America's third-largest economy.


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