Magazine article NotiSur - South American Political and Economic Affairs

Argentina Finally Has Deal with International Monetary Fund

Magazine article NotiSur - South American Political and Economic Affairs

Argentina Finally Has Deal with International Monetary Fund

Article excerpt

The Argentine government and the International Monetary Fund (IMF) finally reached a provisional agreement on Jan. 16, after almost a year of unsuccessful negotiations. It will allow the reprogramming of more than US$11 billion in debt payments. The deal was the first between Argentina and the IMF since August 2001, after which the IMF cut off billions of dollars in funding (see NotiSur, 2001-08-31).

The IMF Executive Committee, in Washington, has yet to approve the accord between its technical team and the Argentine government, but it is expected to do so at its next meeting on Jan. 24.

In transmitting the recommendation to the Executive Committee, IMF Managing Director Horst Koehler said in a statement, "The...discussion on January 8 demonstrated the complexity of the situation in Argentina as we--staff, management, and the authorities--have strived to secure a policy framework that achieves durable macroeconomic stability, supports the resumption of growth, and improves the investment climate. The candid in stressing that difficulties in securing a political consensus in Argentina have been a core problem impeding progress toward a program. That said, we all take note that, in recent months, the economic situation has somewhat stabilized, though it remains fragile."

The agreement covers US$6.6 billion owed the IMF and another US$4.4 billion owed the World Bank and the Inter- American Development Bank (IDB). It postpones payments to the international lenders between now and August, giving the country enough time to elect a new government in April and put together a new economic plan.

"It is essentially what is referred to in the vernacular as a rollover agreement," IMF spokesman Thomas Dawson told reporters. "This is an agreement that attempts to maintain the progress that has been made, noting that the Argentine economy has attained stabilization."

With this accord, Argentina can resume negotiations with the IDB and the World Bank, a step that could bring money for desperately needed social programs. The deal will not give Argentina any new IMF cash, but it will free up millions of dollars that can now go for domestic priorities.

The agreement also ensures that the credits previously approved by the World Bank and IDB will be disbursed. The payouts had been in danger since the Argentine government said it would make no more payments without an IMF deal.

On Jan. 20, the World Bank offered US$1 billion in financial assistance for social programs. World Bank president James Wolfensohn said from Copenhagen that, if the IMF approves the deal, the bank "is ready to announce immediate social assistance packages for US$1 billion for Argentina."

In return for the postponement of its payments, Argentina has agreed to maintain a fiscal surplus of 2.5% of GDP, to achieve a growth rate of 3%, and to keep inflation below 22% for 2003. The letter of intent also calls for beginning the renegotiation of the US$50 billion debt with private creditors, on which Argentina has been in default for more than a year, and to restructure the public banking system. It includes a "trigger clause" indicating that if the Corte Suprema redollarizes bank deposits or if there is a significant rise in the dollar against the peso the agreement will have to be renegotiated.

Economy Minister Roberto Lavagna emphasized that the agreement does not include the traditional IMF requirements to cut public spending and implement structural reforms.

G-7 comes to the rescue

The IMF had sent a negotiating team to Buenos Aires in early January. Just as it appeared that the negotiations were going nowhere, making further defaults almost a certainty, the agreement was pulled from the fire.

On the afternoon before the agreement was finally signed, a frustrated Lavagna had complained that "the Fund reopened the discussion about the monetary program. …

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